Key Takeaways
- Bitcoin’s value rests mostly on its status as the first cryptocurrency and as an alternative to fiat currency, while Ethereum (Ether) offers more utilitarian value through its ecosystem of decentralized apps.
- Spot Bitcoin ETFs were approved by the SEC in January, giving investors easier access without owning the crypto directly.
- It’s difficult to predict which crypto will deliver stronger results going forward, as a pending regulatory decision on spot Ether ETFs could affect Ether prices, adding uncertainty to an already-volatile market.
The cryptocurrency market has come roaring back to life in the past year. Despite growing competition from hundreds of popular altcoins, Bitcoin (BTC) and the Ethereum network’s native coin, Ether (ETH), remain the clear crypto market leaders in 2024.
Together, the market caps of Bitcoin and Ether make up about 70% of the global cryptocurrency market. Bitcoin’s $1.3 trillion market cap dwarfs Ether’s $460 billion market cap, but Ether’s market cap is more than four times larger than any other crypto’s. Competitors may emerge to challenge the two crypto market leaders in coming years, but for now, the two most obvious choices for crypto investors are Bitcoin and Ether.
Here’s what you should consider before buying Bitcoin or Ether:
Bitcoin was the first cryptocurrency. It is a blockchain-based, decentralized digital currency powered by a network of users that allows financial transactions without relying on a central authority or intermediary.
Bitcoin and other cryptocurrencies are an alternative to fiat currencies such as the U.S. dollar, which are backed by governments and central banks. Bitcoin is secured by cryptography, with transactions verified by a process known as mining in which users compete to verify transactions by solving complex mathematical puzzles using powerful computers. This verification method is known as proof of work, or PoW. Bitcoin transactions are permanently recorded on a public ledger that can never be changed or manipulated in any way.
If a Bitcoin miner successfully adds a block of verified transactions to the blockchain, they will receive a reward of newly minted Bitcoins. That reward is currently 6.25 BTC per block, but the reward is cut in half every time 210,000 blocks are added to the blockchain; this halving of rewards is referred to as Bitcoin halving, and the process usually happens about every four years.
Unlike fiat currencies, Bitcoin has a hard cap of 21 million BTC that can ever exist. This cap limits Bitcoin supply and prevents inflation, characteristics that Bitcoin investors believe will make the crypto an effective store of value in the long term.
Ethereum is a blockchain platform created to support smart contracts and secure financial transactions. Ethereum’s native cryptocurrency is Ether.
Smart contracts are software that allow decentralized apps, or dApps, to run automatically on a blockchain when a set of predetermined conditions are met.
The Ethereum network includes dApps for gaming, gambling, socializing and even decentralized finance, known as DeFi. Most non-fungible tokens, or NFTs, are also based on the Ethereum network.
The Ethereum network is decentralized and operates on a network of thousands of computers around the world. In 2022, the Ethereum network transitioned from an energy-intensive PoW verification system to a proof of stake, or PoS, model. Instead of miners competing to solve mathematical puzzles, Ethereum’s PoS system selects validators via an algorithm. To qualify as a potential validator, traders must “stake” some of their cryptocurrency as collateral. The more crypto they stake, the higher the likelihood they will be chosen to validate a block and receive a reward.
Ether does not have a hard supply cap, but supply is managed via a process known as burn. Every time a transaction is completed on the Ethereum network, users must pay a transaction fee, or “gas” fee. The Ethereum protocol specifies that a fraction of each gas fee will be burned, or essentially destroyed. That means Ether has been deflationary over the past year, as more ETH has been burned than has been created, and the total supply of ETH has declined.
When people debate the virtues of Ethereum as an investment, they are really referring to the network’s native cryptocurrency, Ether, although it’s often still colloquially referred to as Ethereum.
Both Bitcoin and Ether are popular cryptocurrencies that operate on decentralized blockchain networks, but beyond that, there are very few similarities between the two investments. Here are some of the many differences between Bitcoin and Ether:
- Bitcoin’s network operates on a PoW verification system, while Ethereum uses a less energy-intensive PoS consensus verification system.
- Bitcoin’s primary purpose is to be a digital currency and an alternative to fiat currencies like the U.S. dollar that can be exchanged easily for goods and services. Ethereum’s primary purpose is to serve as a platform to run smart contracts and other dApps, and ETH is simply the native cryptocurrency used to facilitate transactions.
- Bitcoin has a finite supply capped at 21 million, while Ether has a theoretically infinite supply. However, Ether has actually been deflationary in recent months thanks to its burn.
- Bitcoin’s future price performance will likely depend on its adoption as a legitimate global currency and its popularity as an inflation hedge and store of value. Ether’s future price performance will likely depend more on the popularity of the Ethereum network and growth in dApps and smart contracts.
- Ethereum’s average transaction fee was $2.54 per transaction compared to an average transaction fee of $16.13 for Bitcoin, as of March 5.
Both Bitcoin and Ether have been exceptional long-term investments, but both are prone to extreme price volatility. Buying either crypto requires a high risk tolerance.
Looking at past performance, it’s difficult to choose a winner between Bitcoin and Ether because their relative returns fluctuate depending on the time frame. In the past year, Bitcoin prices are up 195% compared to a 140% gain for Ether. In a three-year time frame, Ether prices are up about 147%, while Bitcoin prices are up about 36%. If you look back over the past five years, Bitcoin prices have risen about 1,626%, while Ether prices are up about 2,624%.
It appears as if Ether has been the better long-term investment, but that trend has reversed in the past year on growing enthusiasm surrounding the launch of spot Bitcoin exchange-traded funds, or ETFs. Of course, past performance is no guarantee of future results, and it’s extremely difficult for even professional analysts to accurately predict crypto market movements.
You can buy Bitcoin and Ether directly on popular cryptocurrency exchanges, such as Coinbase, Gemini and eToro. You can also buy both cryptocurrencies via a brokerage account with Robinhood, Interactive Brokers, TradeStation or other platforms that support crypto trading. Bitcoin and Ether are even available via PayPal or Venmo accounts.
Both Bitcoin and Ether have futures contracts that trade on the Chicago Mercantile Exchange. While futures trading is somewhat advanced for the average investor, there are several Bitcoin and Ether ETFs that hold futures contracts. The ProShares Bitcoin Strategy ETF (ticker: BITO), the VanEck Ethereum Strategy ETF (EFUT) and the ProShares Ether Strategy ETF (EETH) are three examples of popular crypto futures ETFs.
As of January 2024, Bitcoin investors can also buy spot Bitcoin ETFs that hold the cryptocurrency itself rather than futures contracts. The Securities and Exchange Commission has approved the following 11 spot Bitcoin ETFs for trading on major U.S. exchanges:
- ARK 21Shares Bitcoin ETF (ARKB)
- Bitwise Bitcoin ETF (BITB)
- Fidelity Wise Origin Bitcoin Trust (FBTC)
- Franklin Bitcoin ETF (EZBC)
- Grayscale Bitcoin Trust (GBTC)
- Hashdex Bitcoin Futures ETF (DEFI) (Note: DEFI began trading as a futures product in 2022, but Hashdex plans to convert the fund into a spot ETF following an ongoing SEC review.)
- Invesco Galaxy Bitcoin ETF (BTCO)
- iShares Bitcoin Trust (IBIT)
- Valkyrie Bitcoin Fund (BRRR)
- VanEck Bitcoin Trust (HODL)
- WisdomTree Bitcoin Fund (BTCW)
At least 10 firms have applied to launch spot Ether ETFs, but the SEC has yet to approve any of them.
Bitcoin and Ether may seem similar at first glance, but the investment theses for these cryptos are very different.
Bitcoin’s biggest challenge in the future may be scalability given its energy-intensive PoW consensus mechanism. Ether’s biggest challenge may be fending off competition from so-called “Ethereum killer” blockchains that often have faster transaction speeds and lower gas fees, such as Solana (SOL) and Avalanche (AVAX). It’s difficult to say if Bitcoin or Ether will be the better long-term investment moving forward. If history is any indication, investors can’t go wrong with either one.
