Many people ask me, which crypto is a better investment: bitcoin or ether or other crypto? Which will survive the longest and holds its value the best? I tell everyone, I don’t have a crystal ball but I always have an opinion. And my opinion changes when I discover new information.
When I’m pushed to give a direct answer, I like to recommend ‘blue chip’ cryptos like Bitcoin, Ether, Litecoin, or Bitcoin cash. In this article I’ll talk about Bitcoin and Ether.
As I mentioned above, my opinion changes with new information. The chart above provides us with some very interesting insights. It compares Bitcoin’s daily transaction count to Ethereum’s daily transaction count from October 2015 to January 2020. Notice on August 1, 2017 the number of Ether transactions overtook Bitcoin transactions and it didn’t stop there. Ether continued to outpace Bitcoin through January 2020.
On 1/1/2020 Ethereum blockchain daily transactions were 466,000 compared to Bitcoin’s 251,000. That tells me more and more people are using the Ethereum blockchain, which is no surprise, due to the increase in smart contracts being deployed.
So which is best? I think that’s the wrong question to ask. Which one is a good speculative investment? That might be a better question.
I think of bitcoin as an extremely volatile crypto asset; some call it digital gold. I like thinking of it as a long term crypto investment. Why do I think it has value? Well, to date, the bitcoin blockchain has never been hacked! Yes, you heard correctly. It has never been hacked. But don’t confuse the blockchain with exchanges and wallets. Many exchanges and wallets have been hacked. So, because the bitcoin blockchain is so stable and bitcoin is used all over the world, I consider it a good speculative investment.
As some of the advisors I follow would say, buy on the dips and spend small amounts of money, and never spend money you can’t afford to lose. That means if you only have $500 to spend, consider buying only $200 worth of bitcoin and save the rest for another opportunity. Diversity is key. If you have more discretionary funds available you might buy $500-$1,000 worth of bitcoin.
Ether is another extremely volatile crypto asset that I hold for its DeFi potential (decentralized finance) and for its long-term gain potential.
What exactly does DeFi mean?
It is a decentralized movement that leverages blockchain networks to transform financial products. One such product is called a collateralized loan, made popular by MakerDAO. MakerDAO is a decentralized autonomous organization that manages the Maker platform built on the Ethereum blockchain. Maker leverages Ethereum smart contracts to automate the functions of a lending platform, including borrowing and lending.
So, why should this matter to you?
This means individuals like you and me can become our own bank! We can use ETH as collateral to buy the DAI stable coin then loan our DAI to other people and get paid interest.
The bottom line is I believe ETH is a blue chip crypto asset that is worth holding. What gives it value is there are many applications running on the Ethereum network that require the use of ETH to complete transactions. The more transactions being processed, the more demand there is for ETH.
I also consider Bitcoin a blue chip crypto asset that is worth holding. It’s a very stable platform that is recognized all over the world.
Disclosure: I own a little bitcoin and ether and I’m not a licensed financial advisor. I’m a tax accountant with a passion for crypto.
Chart Credit: CoinMetrics.io