The interest in cryptocurrencies is not new, but this 2021 is running wild. On the back of bitcoin , which has shown unprecedented performance since the pandemic, other cryptocurrencies have taken advantage of this dynamic and are carving out their own niche in the market .
This is what has happened with ether , which is already the second token with the most market capitalization and which in recent months has shown rises that make those of bitcoin pale. The same happens with dogecoin , cryptocurrency with the face of a dog that emerged as a joke in 2013 and is now ‘worth’ almost 80,000 million dollars .
Given that there are currently more than 7,000 coins registered by Coin Gecko under a bewildering array of names, it makes sense for most investors to start with the two biggest: bitcoin and ether. Either one would have been a relatively good investment so far in 2021: bitcoin has doubled and ether has quadrupled compared to, say, the 11% the S&P 500 has gained . However, which of the two tokens is better to position yourself right now? To make a decision you have to have several clear aspects.
How Ether Got Here
Ether is the token used in the world’s most widely used blockchain or blockchain network , Ethereum, which provides the technology used to verify and record transactions. The Ethereum network is used by companies like Microsoft for their blockchain offering and has fueled the explosive growth of non-fungible tokens ( NFTs ), the latest craze in digital art.
“Ethereum is a blockchain platform that works like the Apple store or the Android app store,” Pat LaVecchia, CEO of Oasis Pro Markets , explains to Bloomberg . The analyst contrasts this sort of US platform for trading digital securities with bitcoin that constitutes “a commodity like gold, a store of value.”
Unlike bitcoin, where many of its main features, such as its supply cap, are built into its original design, the Ethereum platform is evolving. It is currently undergoing updates that should improve the network , with even a change that will reduce the supply. This could boost the price by offering greater appeal while at the same time putting more limits on the amount of available ether.
“Investors often view Ethereum as a growth investment , making a commitment to the continued development of the decentralized ecosystem built on that blockchain network ,” says Phil Bonello, research director at Grayscale Investments.
Bitcoin, A Strong ‘Pioneer’
Although bitcoin’s dominance has declined this year – bitcoin now accounts for about 46% of the total value of the cryptocurrency market, up from about 70% at the beginning of the year, according to tracker CoinGecko – it is still the largest cryptocurrency with difference and has a market capitalization of over $ 1 trillion compared to Ethereum’s $ 380 billion.
In addition, it is still the clear bet of large companies such as Tesla or MicroStrategy, which have bought the largest cryptocurrency and not ether. In fact, when big names in investment like Paul Tudor Jones or Ray Dalio have talked about cryptocurrencies, they have talked about bitcoin.
This greater imprint of bitcoin is also reflected in volatility. Cornerstone Macro strategists have calculated how bitcoin and ether would perform in a drop. With a drop of around 20% in the Bloomberg Galaxy Crypto Index, there is a greater risk of falling for ether than for its larger ‘peer’ , claims strategist Benson Durham.
Where Is Each One Going?
Bitcoin is approaching initial resistance around $ 58,000, a level at which traders have been taking profits in recent months. The cryptocurrency is recovering from sales in mid-April, although technical analysts remain cautious , they clarify from Coindesk.
“Short-term overbought conditions have returned below resistance at $ 62,000 to $ 65,000, which presents a short-term hurdle,” says Katie Stockton of Fairlead Strategies.
Risks And Benefits
Without leaving the prism of volatility behind, anyone who ventures into cryptocurrencies should be comfortable with price swings , which can be substantial even with the most established ones. There have also been recurring problems with trading processes due to hacks.
Cryptocurrencies can also be affected by regulations or even the possibility of more advancements. Nothing prevents prices from falling for any reason while many market observers warn of a possible bubble .
Most financial advisers say they would object to someone investing more than 5% of their portfolio in cryptocurrencies , and they warn their clients that they must be prepared to lose everything.
However, for those who want to enter the crypto space, there is an argument to buy both as part of the age-old quest for diversification and hedging .