So you’ve done your research, understood your risk, and made sure that no potential cryptocurrency investment gets 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 popular cryptocurrencies on the market right now: bitcoin and ethereum. Both bitcoin and ethereum have recently set new all-time highs, though don’t take that to mean there won’t be much more volatility in the future.
Reading: Should i buy bitcoin or ethereum
Bitcoin and Ethereum are also the two largest cryptocurrencies by market cap and trading volume, but they are very different when you look beyond their shared popularity. While either can be a good choice for crypto beginners, determining which one is right for you may require a closer look at your own goals.
price of bitcoin (btc) against ethererum (eth) over time
note: based on historical data from coindesk using bitcoin and ethereum closing prices since 2015
“I’m a big believer in understanding what you’re investing in, rather than just putting your money where everyone tells you to put it,” says humphrey yang, the personal finance expert behind humphrey talks.
Beyond the technical differences between the two cryptocurrencies, bitcoin and ethereum offer two completely different value propositions to investors, which could be the deciding factor for you.
“I think [which one you should buy] depends on what you think is more important in terms of the underlying value that bitcoin and ethereum provide. While they are cryptocurrencies, I think they both serve two different purposes that everyone will have different opinions about,” says Dan Herron, a CPA with Elemental Wealth Advisors.
Related: This Week’s Top Crypto News
bitcoin was the first cryptocurrency and is known as digital gold. bitcoin is the most valuable crypto on the market, although no less volatile. a coin has ranged in value from under $30,000 to over $60,000 in recent months. Still, many investors view bitcoin as a store of value, like gold, that can be used as a hedge against inflation.
Unlike investing in the stock market, with more predictable returns on investments like index funds, investing in bitcoin has been compared to investing in gold or other alternative assets like art or horses. that’s because there is a finite amount of bitcoin out there. while a company can issue more stock options, there will only be 21 million bitcoins.
See also: Sources: OpenSea is in talks to acquire Dharma Labs, whose Ethereum wallet can transfer money between banks and exchanges, for 110M-130M in an all-stock deal (Kia Kokalitcheva/Axios) – Global Unshared News
People buy bitcoins “for the same reason that 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 major media outlet. cryptocurrency news. even if the value of the dollar plummets, bitcoin, like gold, will retain a separate value.
You won’t see ethereum described as digital gold. ethereum is a software platform that allows developers to create other crypto-oriented applications. To use Ethereum, developers have to purchase and pay fees to the network in Ethereum’s native digital currency, Ether.
When buying ether, ethereum investors are essentially betting that the continued use and expansion of the ethereum network will mean that more and more developers will try to get in and buy ether to pay fees. the more people buy ether, the more its value will increase.
Although not as direct a comparison as bitcoin and gold, some experts compare investing in ethereum to investing in a technology company.
“It acts as a technology platform, as well as money,” says bill noble, chief technical analyst at token metrics, a cryptocurrency analytics platform. “think of it like google stocks.”
if you are just an investor and not a developer, then buying ether is betting that more and more people will use and extend the capabilities of ethereum.
should i buy bitcoin or ethereum?
There are similar risks associated with bitcoin and ethereum, and the growth potential of either is highly speculative. As the top two cryptocurrencies on the market, most experts say that both are good options if you are just starting out on a cryptocurrency investment journey. and then others say it’s better to split the difference and invest in both.
Others argue that while bitcoin is more established, ethereum’s technological potential outweighs it.
“I would [probably] invest in ethereum as it has the highest growth potential of the established cryptocurrencies given that products like nfts are part of the ethereum blockchain,” says ryan sterling, cfp and founder of future you heritage. “Also, there seems to be a growing adoption and acceptance of ethereum.”
an upcoming ethereum network upgrade could draw more attention to ethereum in the coming months, says vrishin subramaniam, founder and financial planner at capitalwe, which is why he would prefer ethereum currently. but he also recognizes the potential of both cryptocurrencies. “we are still quite early in the adoption curve and i think both bitcoin and ethereum will continue to have value. I see bitcoin as the more conventional of the two, while ethereum is the more utilitarian of the two,” says subramaniam.
So there are investment experts asking: why do you have to choose?
“If given a choice between the two, I wouldn’t force the ‘which?’ questions, but take both,” says Theresa Morrison, CFP at Beckett Collective.
“I would invest in both,” says jeremy schneider, the creator of the 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 cryptocurrencies can play a large role in how much of your money you allocate to each coin. If you are 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 market-cap-weighted strategy by putting your proportional investment into each asset based on market cap, says Schneider. For cryptocurrencies, market capitalization refers to the total market value of all the coins that have been mined. if you start with $100 and want to invest in bitcoin and ethereum, it would be $71 in bitcoin and $29 in eth based on your current market caps.
schneider also recommends using this strategy if you plan to diversify into more currencies in the future. for example, a $100 portfolio of 10 coins based on market capitalization 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 currency (usdc) 1.8%
- polkadot (dot) 1.6%
- uniswap (uni) 1.0 %
Which way you choose, experts warn against investing too much of your portfolio in crypto assets. In general, you should keep crypto investments below 5% of your portfolio.
(read more: this is how much of your investment portfolio should be in crypto, according to 5 experts)
should I consider other cryptocurrencies?
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 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’m just looking at bitcoin and ethereum,” says sterling. “Just like the dotcom boom, in 20 years I suspect most of these cryptocurrencies will be worthless, with the exception of bitcoin and ethereum.”