Why Ethereum is a better long-term buy than Bitcoin

If you could only have a single crypto in your portfolio, what would it be? Most people will probably answer Bitcoin (BTC 0.20%), and with good reason. Bitcoin is not only the best-known and most popular crypto, but also often the benchmark against which all other cryptos are compared. In terms of market capitalization, Bitcoin has always towered far above its rivals.

Then it is possible Ethereum (ETH 3.04%) might actually be better than Bitcoin as a long-term investment? For years, Ethereum has played second fiddle to Bitcoin. However, there are several important reasons why Ethereum may now be a superior long-term buy. Most importantly, the technological platform that powers Ethereum is about to get a major upgrade.

The merger

If there is only one reason to rethink your Ethereum investment thesis, it has to be the merger. This is the much-promised moment when the Ethereum blockchain finally converts from a proof-of-work to a proof-of-stake consensus mechanism. In layman’s terms, this means that Ethereum will soon run on a superior technology that will make it possible to do everything on the Ethereum blockchain faster, cheaper and better.

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In contrast, Bitcoin remains locked into its energy-intensive, low-throughput, proof-of-work mining technology. By some accounts, the July crypto rally has been fueled by optimism about the merger expected in September, and for good reason.

Real tool

Which brings us to the second reason Ethereum is a better long-term buy than Bitcoin. Quite simply, there is more practical utility for Ethereum than Bitcoin. Developers have created non-fungible tokens (NFTs), smart contracts, and decentralized finance protocols (DeFi), all of which run on top of the Ethereum blockchain. There’s a whole ecosystem around Ethereum that doesn’t exist with Bitcoin.

True, Bitcoin may have more social media avatars trying to pump it higher, but Ethereum has more developers, entrepreneurs, and IT professionals bringing real-world applications to life. You can use Bitcoin to pay for transactions or sit on it as a long-term store of value, hoping that it increases in value as a result of digital scarcity. However, due to its underlying technological infrastructure, Bitcoin is much more limited than Ethereum.

Changing investment narratives

And that leads us to the final reason why Ethereum is a better long-term play than Bitcoin: The whole investment narrative surrounding Bitcoin is starting to fall apart. Until the market meltdown this year, the fundamental argument for holding Bitcoin long-term was that it was not correlated with traditional investments such as stocks. In other words, even if the overall stock market fell, Bitcoin would not. In this regard, it will act as “digital gold.” It would have an intrinsic value when everything else merged.

As more investors began to think of Bitcoin as “digital gold”, it only made sense that people would want to hold BTC during any crisis or downturn. But what happened during the last market downturn? Bitcoin fell just like all other cryptocurrencies, and in some cases harder and faster. So some of the allure surrounding Bitcoin as “digital gold” is starting to fade.

At the same time, the transition to a proof-of-stake mechanism as a result of the merger will transform ETH into a deflationary asset, further increasing its appeal as a possible inflation hedge. Also, due to the way staking works, an increasing amount of ETH will be “locked” and unavailable for trading. This will naturally drive up the price of ETH, just based on the principle of supply and demand.

The future is built on Ethereum

As if that wasn’t enough, a growing number of high-profile companies around the world are building on top of the Ethereum blockchain. Quite simply, due to its flexibility and scalability, Ethereum is becoming the blockchain of choice for large institutions. If Bitcoin is “digital gold,” Ethereum is “digital oil.” In the long run, Ethereum will be the more valuable crypto because it has more practical uses.