Better Buy: Bitcoin or Ethereum?

After Bitcoin (BTC 0.73%) soared by more than 150% last year, investors are now looking far and wide for cryptocurrencies that might be able to outperform Bitcoin in 2024. One intriguing candidate is Ethereum (ETH 0.59%), which is still the world’s second-most valuable cryptocurrency with a whopping $270 billion market cap.

While Ethereum might not get the same hype as Bitcoin, it’s certainly worth a closer look, especially if some of the catalysts expected to push Bitcoin higher fail to materialize. Let’s take a closer look.

The spot Bitcoin ETF

Just about everyone agrees that investor anticipation of a new spot Bitcoin ETF is the key factor pushing Bitcoin higher right now. The underlying logic makes sense: A new regulated financial product for investing in Bitcoin should attract money from both retail and institutional investors. If institutional investors with trillions of dollars of assets under management allocate just 1% of their portfolios to Bitcoin, that could result in literally tens of billions of dollars flowing into Bitcoin. That would almost certainly cause the price of Bitcoin to soar.

But there are several problems with that argument, says JPMorgan Chase (JPM 0.50%). In a December research note to clients, JPMorgan Chase specifically pointed out that much of the hype around the Bitcoin ETF might be undeserved. For one, spot Bitcoin ETF products exist elsewhere in the world (in both Canada and Europe), and they have experienced relatively weak demand. What’s to say that the U.S. market will be different?

Moreover, there are other Bitcoin investment products to choose from right now. Popular choices include Grayscale Bitcoin Trust (GBTC -0.23%) and ProShares Bitcoin Strategy ETF (BITO -0.51%). So instead of huge flows of new money into Bitcoin, we might just see a reshuffling of money out of existing Bitcoin investment products and into the new spot Bitcoin ETF. The net impact, in that case, would not be nearly as great as some are now predicting.

The Bitcoin halving

The second major catalyst for Bitcoin is the approaching halving event. This event, which occurs only once every four years, is coming up in April, and it’s likely to be one of the most talked-about developments in the crypto market this year. In three past halvings, the price of Bitcoin has soared, and many investors are expecting the same to happen again. In fact, some are now predicting that Bitcoin could push through the $100,000 mark by the end of the year.

But keep in mind that a growing number of influential voices on Wall Street think that much of the Bitcoin halving’s impact might already be priced in. If you buy into the efficient market hypothesis, which says that all publicly available information is already factored into prices, then maybe the halving will be a non-event.

After all, the entire market knows when the halving is going to take place. There are websites with clocks counting down the seconds. And the entire market has plenty of historical data to work with. Granted, the crypto market may not be as efficient as the equity market at pricing in information, but it’s safe to say that every major Wall Street firm is aware of the implications of the Bitcoin halving.

The case for Ethereum

While Ethereum may not have the same kinds of catalysts as Bitcoin, it is working on significant improvements to its overall blockchain architecture. Ethereum has not really delivered on everything it originally promised for The Merge, when it transitioned to a much more energy effective network. This year might be an opportunity to reassure investors that everything is still on track. If these improvements lead to lower fees, faster transaction speeds, and higher overall throughput, it could make Ethereum much more attractive to investors.

Moreover, Ethereum is more likely to benefit from increased development activity in crypto than Bitcoin. That’s because Ethereum, unlike Bitcoin, is active in just about every major niche of the blockchain and crypto world, including non-fungible tokens (NFTs), decentralized finance (DeFi), blockchain gaming, the metaverse, and Web3. During the long crypto winter that set in during 2022, many of these areas went into hibernation. But in a crypto spring, they could come back to life.

And the better buy is…

I’ve tried to make a compelling case for Ethereum, but if forced to choose between Bitcoin and Ethereum, I’m still going with Bitcoin. Yes, the new spot Bitcoin ETF might be overhyped. And yes, the Bitcoin halving cycle might be underwhelming this time around. But with so much institutional investor support behind it now, Bitcoin is closer to going mainstream than at any time in its history. If there’s just one crypto to buy in 2024, it’s Bitcoin.