Cryptocurrency prices have outperformed other assets in the past few years. Indeed, Bitcoin has jumped by more than 8,000% in the past five years. In the same period, the S&P 500 index has jumped by just 120% while gold has risen by just 40%. Ethereum has even performed better than Bitcoin.
Bitcoin price has jumped from less than $1 in 2009 to more than $60,000 in March this year while Ethereum has surged to more than $4,000. Today, these are the only cryptocurrencies worth over £1000 per coin. Therefore, in this article, we will look at the difference between the two and whether they are still good investments.
Bitcoin vs Ethereum
Bitcoin and Ethereum are the two most popular blockchain projects in the world. According to CoinGecko, the two have a combined market capitalization of more than $1.5 trillion. This means that the two coins are more valuable than the other 11,000 cryptocurrencies in existence today.
Bitcoin and Ethereum are different. Bitcoin was created to be a decentralized version of a currency. Unlike the US dollar and euro, Bitcoin is not created by any central bank. Instead, new coins are minted through a process known as mining. This is where computers solve tough mathematical calculations. As a result, unlike fiat currencies, its supply cannot be manipulated.
Ethereum, on the other hand, is an operating system that enables developers to build their own decentralized platforms. In the past, they have used its network to build cryptocurrencies like Shiba Inu, non-fungible tokens (NFT), marketplaces like OpenSea, and decentralized finance (DeFi) platforms like Aave and Uniswap. ETH is the native token for the ecosystem.
Why their prices have risen
There are several reasons why Bitcoin and Ethereum prices have jumped over the years. First, Bitcoin is a first-generation cryptocurrency while Ethereum is a second-generation. This has given them a pole position as cryptocurrencies have become an asset class.
Second, investors believe that these cryptocurrencies will keep doing well because of their role as inflation hedges. In the past few years, inflation in most countries has risen substantially.
For example, according to the US inflation calculator, an item that cost $1,000 in 2009 is now costing $1,289. This means that the value of the US dollar has been falling in the past few years. Therefore, many investors believe that the two cryptocurrencies will play an important role as inflation hedges in the future.
Meanwhile, the actions by the Federal Reserve have made cryptocurrencies more attractive. Since the 2008/9 Global Financial Crisis (GFC), most central banks have opted to leave interest rates low.
The Fed has also adopted a policy to boost its balance sheet. Indeed, its balance sheet has grown from less than $1 trillion in 2008 to more than $8 trillion in 2021. All these factors have pushed investors to digital currencies.
Another reason why Bitcoin and Ethereum have done well is that there is an ongoing trend to move from centralized options to decentralized ones. For example, the fastest-growing sector in the art market is the non-fungible token (NFT) industry.
Similarly, the fastest growing sector in gaming is decentralized games while the fastest growing sector in finance is decentralized finance (DeFi). Ethereum is the biggest enabler of these industries. For example, Ethereum’s DeFi applications have a total value locked (TVL) of more than $170 billion.
Are they worth purchasing?
Bitcoin and Ethereum are relatively expensive to most people. So, are they worth investments? While cryptocurrencies are relatively volatile assets, many experts believe that people should allocate some of their assets in them. One of the cheapest ways to buy Ethereum and Bitcoin is to do it partially. You can buy a part of Ethereum in many exchanges for as little as 50 pounds. This guide from Bankless Times gives a great overview on how to buy Ethereum.
Another option for investing in these assets indirectly is to invest in other cheaper altcoins. Historically, the prices of most cryptocurrencies have a correlation. For example, as shown below, the prices of Bitcoin, Ethereum, Litecoin, and Bitcoin Cash tend to move in the same direction. Therefore, you can use cheaper cryptocurrencies as a proxy for the bigger ones.
There are other catalysts that will push Ethereum higher. For example, the developers are currently transitioning the network into a proof-of-stake (PoS) token. This process will make the network faster and more interoperable with other chains. Also, the market size of the decentralized universe has a bigger room to grow.
In addition, Bitcoin and Ethereum are gaining trust among institutional investors. Therefore, this will help them become more mainstream. Besides, these investors have significant dry powder that they can deploy in the industry.
Bitcoin and Ethereum are trading significantly above £1,000. This is a remarkable performance since the two coins were trading at less than £5 a decade ago. Still, at Cryptopolitan, we believe that they are good investments for both short-term and long-term investors.