Suppose you’re planning to invest in cryptocurrencies in the near future. In that case, the chances are that you’ve already done your research, figured out your risk tolerance, and made sure that investing in crypto won’t get in the way of your other financial goals. Now comes the time to choose which coins to invest in.
Experts would advise that you start with two of the most popular and well-known cryptocurrencies in the market: Ethereum and Bitcoin.
These two are the largest digital currencies based on market cap and exchange volume, but they’re very different despite being nearly equal in popularity. Both are good for beginners, but deciding which is better for you would require you to look closely at your goals. Looking past the technical difference between the two cryptos, they offer completely different value for investors, and that could be the deciding factor for you.
And while you weigh out the pros and cons of both crypto, you can check out The News Spy platform to help you get started with investing in digital currencies.
Here’s a closer look at both:
Largely known as the first cryptocurrency and hailed as the digital equivalent of gold. It is currently the most valuable crypto in the market, but it is still subject to the typical volatility that comes with cryptocurrencies. To get a sense of the range of its volatility, one coin can jump from a value of $30,000 to $60,000 in just months. Despite this, investors still see Bitcoin as a store of value similar to gold and can be used to guard against inflation.
Investing in Bitcoin has been repeatedly compared to investing in gold or alternative assets, making it different from investing in the stock market or index funds which provide more predictable returns. The reason behind this is the limited amount of Bitcoin that can be mined. Companies can always issue more stock options, but there will only ever be 21 million Bitcoins in existence.
People treat buying Bitcoin like buying diamonds or keeping gold coins; even if dollar values plummet, Bitcoin will retain a separate value.
Ethereum, on the other hand, isn’t quite like the digital gold that Bitcoin is. Ethereum is a software platform that developers use to build cryptocurrency-related applications. There is a fee (paid in its native digital currency called ‘ether’) that developers have to pay before being able to use Ethereum.
Buying ether means that investors are essentially putting their hopes that the continued use and development of the Ethereum network would pull more and more developers to try and get in on the action and buy ether to pay the fees. The more people buying ether, the higher its prices will be.
Because of this, investing in Ethereum is often compared to investing in a tech company. If you’re not a developer, buying ether is placing a bet on whether or not more and more people would continue to use Ethereum’s various capabilities.
Which should I buy?
First of all, experts would recommend keeping your crypto investments to no more than 5% of your portfolio and only invest in crypto if it won’t get in the way of things like emergency funds or retirement savings.
Both cryptocurrencies have their associated risks, and the potential for growth of either still remains highly speculative. Being the top two cryptos on the market, both are lauded by experts as good options for people just starting to invest in cryptocurrencies. Others would even tell you to just simply invest in both, reasoning that even if Bitcoin is more popular, Ethereum’s technological potential outweighs that.
Typically, Bitcoin is viewed as the more mainstream of the two, while Ethereum has a utilitarian feel. Nevertheless, we are still in the early stages of adoption, and both digital currencies will still continue to hold their value.
But then, there are experts that would tell you to just not choose and invest in both.
Investing in both Bitcoin and Ethereum
As with every investment, your financial goals and knowledge can play a big part in how much money you should be allocating to each coin. You can consider a weighted market cap strategy. This means putting a proportional amount into each asset based on the total market value of all the coins that have been mined. A strategy like this can be helpful if you plan on extending your scope to more coins in the future. Whichever strategy you take, experts warn against putting too much into crypto assets. Again, crypto investments should only make up less than 5% of your portfolio.
Here comes the question: should I consider investing in other cryptos? Well, definitely not when you’re starting out. Bitcoin and Ethereum are already volatile as it is, and altcoins are even more unpredictable. Many experts suspect that, like the dot-com boom in the late 1990s, most of the other cryptocurrencies will be rendered useless in another 20 years.