Ethereum or Bitcoin: Which is the Best Buy for Your Portfolio Right Now?

Both Bitcoin (BTC 0.16%) and Ethereum (ETH 1.25%) has been hit hard by the current downturn in the crypto market. Bitcoin, for example, is down 68% in the last 12 months while Ethereum is down 67%. Nevertheless, there are still some investors who want to enter the crypto market, and for many, the choice of where to start may come down to Ethereum or Bitcoin, which are the two most important symbols by market capitalization.

While Bitcoin and Ethereum are down by similar amounts, they are very different cryptos. It’s worth looking into their strengths and weaknesses to see if one is a better investment than the other.

Bear markets and crypto crashes

Bitcoin has a well-deserved reputation for extreme market volatility. Enormous spikes have been followed by correspondingly large plunges. Yet, ever since its launch back in 2009, Bitcoin has proven surprisingly resilient. Over the past decade, Bitcoin has experienced at least five different bear markets. Each time it came back stronger than before.

While the crypto winter of 2022 has been gutless, it is hardly the scariest downturn Bitcoin has experienced. This difference had to go to the bear market of 2011, when the price of Bitcoin cratered from $32 to $0.01 in just a few days. At the time, it really looked like Bitcoin was headed for zero, and even some die-hard crypto enthusiasts threw in the towel. But nearly 20 months later, Bitcoin again tested all-time highs. This pattern has been repeated over and over again. The only real question, it seems, is how long it will take for Bitcoin to start making new highs next.

Of course, the big caveat here is that past results are no guarantee of future results. That said, investors should be cheered by the fact that Bitcoin has seen the same kinds of dramatic ups and downs before. It has typically taken anywhere from 18 months to three years for it to reach a new high, so investors need to be patient.

Institutional cash flows

Another factor in Bitcoin’s favor is the relatively recent influx of institutional money into the token. This will help support Bitcoin’s price in the long term. In comparison, institutional investors have been less eager to buy Ethereum.

Image source: Getty Images.

This shift in thinking about Bitcoin can be traced back to 2019, when several major Wall Street banks began thinking of crypto as an uncorrelated asset class.

That was back in 2019, of course. As we have seen in 2022, Bitcoin appears to be much more correlated with the broader market (and tech stocks in particular) than first thought.

Nevertheless, the superior long-term returns of Bitcoin are apparently too good to pass up. Just as institutional investors have already embraced risky assets like real estate and private equity, they have now begun to consider the merits of crypto. Things really came to a head this summer Black stone (BLK 0.29%) announced a unique partnership with cryptocurrency exchange Coin base (COIN -1.65%)which opens up new opportunities for large institutional investors to allocate part of their portfolios to crypto.

The one crypto that institutional investors seem to agree on is Bitcoin. An important factor in their decision is that Bitcoin is easier to understand than Ethereum. It is also generally considered to be the one crypto that is not a “security”, and thus the one crypto that has the least risk of being regulated by the Securities and Exchange Commission.

In contrast, there are now concerns that Ethereum may be categorized by regulators as a security, which could have a chilling effect on the interest pension funds or endowments may have in investing in Ethereum. If given a choice between Bitcoin and Ethereum, the path of least resistance will lead to Bitcoin. Until the SEC or another regulatory body gives its stamp of approval to all crypto, including Ethereum, it’s hard to see how this thinking will change.

Bitcoin in the long run

From this perspective, Bitcoin appears to be the superior investment option. Of course, this does not guarantee that it will outperform Ethereum in the next six to 12 months. But it does suggest that Bitcoin is the better long-term investment, as long as you’re willing to buy and HODL — crypto lingo for “hold” — Bitcoin for an extended period of time. Remember, as we’ve seen from previous Bitcoin bear market rallies, it can take anywhere from 18 months to three years for Bitcoin to see a new all-time high. For that reason, many experienced crypto investors are now looking ahead to 2024, and not 2023, as the earliest we will see Bitcoin rise again.

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