So you’ve done your research, understand your risk, and made sure any potential crypto investments won’t get in the way of your other financial goals. Now it’s time to choose your coins.
Financial experts say it’s a good idea to start with the two most well-known cryptocurrencies on the market right now: Bitcoin and Ethereum.
They’re the two largest cryptocurrencies by market cap and exchange volume, but they’re very different when you look past the popularity they share. While either can be a good choice for crypto beginners, determining which is right for you may require a closer look at your own goals.
Bitcoin (BTC) vs. Ethererum (ETH) Price Over Time
“I’m a big believer that you should understand what you’re investing in, instead of just putting your money where everyone else is telling you to put it,” says Humphrey Yang, the personal finance expert behind Humphrey Talks.
Beyond the technical differences in the two cryptos, Bitcoin and Ethereum offer two completely different value propositions for investors, which could be the deciding factor for you.
“I think [which one you should buy] depends on what you believe is more important in terms of the underlying value that Bitcoin and Ethereum provide. While they are cryptocurrencies, I believe both serve two different purposes that everyone will have different opinions on,” says Dan Herron, a CPA with Elemental Wealth Advisors.
Bitcoin
Bitcoin was the first cryptocurrency, and is known as digital gold. Bitcoin is the most valuable crypto on the market — though no less volatile. One coin has ranged in value from less than $30,000 to more than $60,000 in recent months. Still, many investors see Bitcoin as a store of value, like gold, that can be used as a guard against inflation.
Unlike investing in the stock market, with more predictable returns on investments like index funds, investing in Bitcoin has been likened to investing in gold or other alternative assets such as art or horses. That’s because there’s a finite amount of Bitcoin out there. While a company can issue more stock options, there will only ever be 21 million Bitcoins.
People buy Bitcoin “for the same reason people would have diamonds, or some $100 bills, or some gold coins in a safe,” says Galen Moore, director of data and indexes at Coindesk, a leading cryptocurrency news outlet. Even if the value of the dollar plummets, Bitcoin, like gold, will retain a separate value.
Ethereum
You won’t see Ethereum described as digital gold. Ethereum is a software platform that allows developers to build other crypto-oriented apps on it. To use Ethereum, developers have to buy and pay fees to the network in Ethereum’s native digital currency, ether.
By buying ether, investors in Ethereum are essentially betting that the continued use and expansion of the Ethereum network will mean more and more developers trying to get in — and buying ether to pay the fees. The more people that buy ether, the higher its value figures to rise.
While not as direct a comparison as Bitcoin and gold, some experts compare investing in Ethereum to investing in a tech comapny.
“It acts as a tech platform, as well as money,” says Bill Noble, chief technical analyst at Token Metrics, a cryptocurrency analytics platform. “Think of it like Google stock.”
If you’re just an investor, and not a developer, then buying ether is betting that more and more people will use and expand upon Ethereum’s capabilities.
Should I Buy Bitcoin or Ethereum?
There are similar risks associated with both Bitcoin and Ethereum, and the potential growth of either is highly speculative. As the top two cryptos on the market, most experts say both are good options if you are just starting a crypto investment journey. And then others say it’s just as well to split the difference and invest in both.
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Experts generally agree to keep your crypto investments to less than 5% of your portfolio — and only if investing in crypto won’t get in the way of things like building an emergency fund and paying off high-interest debt.
Others contend that even though Bitcoin is more established, Ethereum’s technological potential outweighs that.
“[I would] probably invest in Ethereum as it has the highest upside potential of the established cryptocurrencies, given products like NFTs are part of the Ethereum blockchain,” says Ryan Sterling, a CFP and founder of Future You Wealth. “Also, there appears to be a growing adoption and acceptance of Ethereum.”
An upcoming Ethereum network update could bring more attention to Ethereum in coming months, says Vrishin Subramaniam, founder and financial planner at CapitalWe, which is why he would currently go for Ethereum. But he also recognizes the potential of both cryptocurrencies. “We are still fairly early in the adoption curve and I think both Bitcoin and Ethereum will continue to hold value. I view Bitcoin as the more mainstream of the two, while Ethereum is the more utilitarian of the two,” says Subramaniam.
Then there are investing experts who ask: Why do you have to choose?
“If given the choice between the two, I wouldn’t force the questions of ‘Which one?,’ but rather take both,” says Theresa Morrison, a CFP at the Beckett Collective.
“I would invest in both,” says Jeremy Schneider, the creator behind Personal Finance Club on Instagram.
How to Invest in Both Bitcoin and Ethereum
Even if you choose to buy both Bitcoin and Ethereum, your personal financial goals and knowledge of cryptocurrency can play a big part in how much of your money you allocate to each coin. If you’re going to split your investment, Subramaniam recommends a 60/40 split and Sterling recommends an even 50/50 split.
You can also consider investing with a weighted market cap strategy by putting your proportional investment into each asset based on market cap, says Schneider. For cryptocurrency, market cap refers to the total market value of all of the coins that have been mined. If you’re starting with $100 and want to invest in Bitcoin and Ethereum, that would be $71 in Bitcoin and $29 in ETH based on their current market caps.
Schneider also recommends using this strategy if you plan to diversify into more coins in the future. For example, a 10-coin $100 portfolio based on market cap, would look like this:
- Bitcoin (BTC) 54.4%
- Ethereum (ETH) 21.9%
- Tether (USDT) 4.9%
- Binance Coin (BNB) 4.3%
- Cardano (ADA) 3.7%
- Dogecoin (DOGE) 3.2%
- XRP (XRP) 3.1%
- USD Coin (USDC) 1.8%
- Polkadot (DOT) 1.6%
- Uniswap (UNI) 1.0%
Whichever way you choose, experts warn against investing too much of your portfolio into crypto assets at all. Generally, you should keep crypto investments to below 5% of your portfolio.
Should I Be Considering Any Other Cryptos?
Definitely not as a beginner, according to the experts we’ve talked to. Altcoins are even more unpredictable than the already-volatile Bitcoin and Ethereum.
“It’s like playing with penny stocks,” says Nate Nieri, CFP and founder of Modern Money Management. “For every winner, there is a long trail of losers. Your guess is as good as anyone else’s.”
“I am only looking at Bitcoin and Ethereum,” says Sterling. “Like the dotcom boom, in 20 years I suspect most of these cryptocurrencies will be worthless, with the exception of Bitcoin and Ethereum.”
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