Bitcoin‘s (BTC 0.42%) The price has more than doubled in the last 12 months and reached a record level. Four catalysts triggered this rally: confirmations Bitcoin’s first spot-priced exchange-traded funds (ETFs) The last four-year halving in January, two interest rate cuts by the Federal Reserve, and Trump’s victory in the presidential election.

ETFs have made it easier for mainstream and institutional investors to invest in Bitcoin, the halving reduced Bitcoin’s supply growth rate by halving mining rewards, and the Fed’s rate cuts will likely drive investors into cryptocurrencies, growth stocks, and more speculative investments . investments. Trump’s new administration is also expected to reverse the Biden administration’s restrictions on the crypto market.

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All these headwinds make the world’s top cryptocurrency an attractive investment right now. However, as Bitcoin approaches record levels, investors may also consider investing. smaller cryptocurrencies is still trading below all-time highs. Let’s take a closer look Ethereum (ETH 4.14%)To see if Bitcoin, the world’s second most valuable cryptocurrency, fits a more attractive buying profile than Bitcoin right now.

Differences between Bitcoin and Ethereum

Bitcoin is a proof of work (PoW) Token that must be mined digitally with power-hungry ASIC (application-specific integrated circuit) miners. It has a limited supply of 21 million coins, of which almost 20 million have already been mined.

The difficulty of Bitcoin mining, which doubles with a halving every four years, is gradually slowing down this process. The last Bitcoin will probably be mined in 2140. This scarcity makes it more like gold, silver and others precious metals compared to other cryptocurrencies.

Ethereum, which has ether as its own token, was once a PoW blockchain like Bitcoin. However, a switch to a more energy efficient one was made in 2022 proof of stake (PoS) The mechanism in a process called coalescence.

PoS tokens, like Ethereum’s, cannot be mined. Instead, investors “stake” (or lock) their tokens on the blockchain to earn interest-like rewards. Unlike PoW blockchains, PoS blockchains are also smart contractsused to improve decentralized applications (dApps), Non-fungible tokens (NFTs)and other crypto assets. Therefore, the value of Ethereum is often determined by Ethereum’s popularity among developers, while Bitcoin is valued more due to its scarcity.

Ether does not have a supply limit and there are currently approximately 120 million tokens in circulation. It became deflationary after The Merge two years ago, but this year’s fee-cutting Dencun upgrade has turned it inflationary again. Ethereum investors attempt to limit its supply by periodically burning (removing from circulation) large numbers of tokens, but this process is not as predictable or transparent as Bitcoin’s planned halving.

Why did Ethereum underperform Bitcoin?

Ethereum’s price is up more than 50% in the past 12 months but has underperformed Bitcoin, remaining nearly 40% below its all-time high. Ethereum’s first spot-price ETFs were approved and began trading this July, but they haven’t made as much of a splash as Bitcoin’s ETFs. While Ether did not appear to be as bullish as Bitcoin as interest rates fell, it rebounded along with Bitcoin and the broader crypto market following the conclusion of the presidential election.

Ethereum appears to be lagging behind due to two near-term challenges. First, Ethereum faces stiff competition from newer and faster PoS blockchains. solana (LEFT -0.73%) And Cardano (ISLAND 1.84%). Second, increased supply limits price growth.

However, other winds may come into play in the long run. Ethereum’s next upgrade, “The Verge,” will improve its security features and lower its hardware requirements, allowing it to run on smaller devices such as smartwatches and smartwatches. Internet of Things (IoT) devices. UBS (UBS -2.24%) it also recently launched its first tokenized fund on Ethereum’s blockchain, indicating that it is a more stable PoS platform than Solana or Cardano.

So is it wise to choose Ethereum over Bitcoin?

Some bullish investors expect Ethereum to rise. VanEck’s Matthew Sigel and Patrick Bush expect the price to quadruple to $11,800 by 2030, while Ark Invest’s Cathie Wood believes the price could rise beyond 2030 5,600% to $166,000 Until 2032.

But personally, I still think it’s smarter to buy Bitcoin instead of Ethereum. Bitcoin is like digital gold, so its value should stabilize and rise against most fiat currencies. Ethereum tokens are still inflationary, their supply is unlimited, they cannot be mined, and their future value will be largely determined by the utility Ethereum provides for dApp developers and financial institutions. Ethereum’s price may continue to rise, but I doubt it will consistently outperform Bitcoin over the next few years.