Bitcoin or Ethereum – which cryptocurrency is more profitable in the long term?

For 12 years now, Bitcoin has been the main cryptocurrency in the world. It has the largest capitalization, trading volume, number of investors and market share.

Right behind it is Vitalik Buterin’s Ethereum network, which continues the transition to the Proof-of-Stake (PoS) consensus algorithm. The launch of Ethereum 2.0 could radically change the balance of power and finally take Ether to the top.

This year, the explosive growth in decentralized finance (DeFi), applications (dApps) and the NFT market has only propelled the price of Ether to record highs. Together with the experts, we figured out what are the chances that Ethereum will overtake Bitcoin and become the main cryptocurrency of the market.

How is Ethereum catching up with Bitcoin?

The Bitcoin (BTC) network overtakes Ethereum (ETH) in most of the main indicators: capitalization, trading volume, mining profitability, the number of active wallets, transactions, network hashrate. But this lag is gradually closing, and sometimes Ethereum even breaks ahead. For example, in the spring, ETH miners earned more than BTC miners, and the Ethereum blockchain periodically breaks ahead in terms of the number of processed transactions.

On the day of publication of article 1, MTC costs $ 47,059, its capitalization is $ 873 billion. The price of 1 ETH is $ 3,108, capitalization is $ 359 billion. The difference in capitalization is 2.4 times. However, it decreases over time. For example, at the beginning of 2017 the difference was 23 times, in January 2018 – 2.7, in January 2020 – 9.36, at the beginning of this year – 6.75.

The volume of daily trading with BTC is $ 35.7 billion, and with ETH – $ 18.8 billion. However, the number of ETH transactions since the beginning of the year has grown by more than 50%, while in the Bitcoin network, on the contrary, it has decreased.

Now the share of MTC on the market is 44%, ETH – 18.1%. Since the beginning of the year, the dominance of bitcoin has decreased by 32%, while the share of ETH has grown by only 5.5%.

Graphs of the shares of BTC and ETH in the market

Charts of the shares of BTC and ETH in the market. Most of the time, MTC is the clear leader. Only in June 2017, the share of MTC dropped to 37.9%, while the share of ETH rose to 33.2%.

Ethereum advantages over Bitcoin 

Bitcoin and Ethereum are two very different projects. Let’s take a look at their key differences.

Bitcoin is primarily a cryptocurrency. It has a limited range of use cases – it is a digital asset for those looking for an alternative investment vehicle. The Bitcoin blockchain operates on a Proof-of-Work (PoW) consensus algorithm, in which the success of a miner depends on the power of his equipment. Earlier, we talked in detail about Bitcoin mining.

PoW is now considered an outdated technology that is poorly suited for money transfers – new projects, as a rule, do not use it. After all, PoW has a lot of disadvantages:

  • low speed and poor scalability – the maximum speed of transactions in the Bitcoin network is 7-10 operations per second;
  • high commissions for miners;
  • high energy consumption, mainly obtained from the combustion of fossil fuels.

Already, Ethereum is technically superior to Bitcoin. The speed of this network is 30 transactions per second, and thanks to solutions of the second level, the throughput can reach 2,000 – 4,000 transactions per second. Checking the blocks takes 12 seconds, versus 10 minutes for the BTC.

Ethereum 1.0 also runs on PoW. But the network is already undergoing an active transition to state 2.0, when the network will operate on the basis of PoS, there will be no mining, consensus will be reached by validators, and new coins will be mined through staking.

The update will increase the speed, efficiency and scalability of the Ethereum network, as well as make mining more sustainable. Earlier, we talked in detail about how Ethereum 2.0 will work and what stages the network will go through on the way to the upgrade.

However, Ethereum is much more than a cryptocurrency. It is a huge decentralized computing network that can run smart contracts, decentralized apps, DeFi protocols, tokens and NFTs. It turns out that ETH is just a unit of value that exists on the Ethereum blockchain.

Ethereum has many use cases, dozens of large and popular ecosystems have been built on its basis: financial and credit protocols, games, social networks, accounting systems and many other cryptocurrency market projects.

Why will the price and use of ETH only go up?

We think that the backlog of the ETH from the military-technical cooperation will decrease over time. There are several main reasons for this view.

Continuous development.  Ethereum has a powerful and experienced development team that has been working on developing and scaling the network for many years and is not afraid of change. Ethereum now and in 2015 are different projects, and there is still a transition to PoS ahead, which can make this blockchain the most advanced project on the market. Bitcoin has hardly changed in 12 years. The last major change came in 2017 when the SegWit protocol was activated, increasing the block size.

Ian Balina, founder and CEO of Token Metrics, commented to Insider that Bitcoin is overvalued. The BTC had a pioneering advantage, but in the long term, ETH will surpass it due to its technical excellence.

“If you look at the developers, they all use Ethereum to a large extent now. Ethereum has 10 times more active developers every month than Bitcoin. MTC now, in my opinion, is just a store of value, digital gold, but ETH is the next Internet, ” Balina believes.

Ethereum prospects. Ether can become the basis for any technology on the blockchain, it has many use cases in the real economy. Bitcoin is unlikely to go beyond storing value and remittances. For example, Todd Morley, co-founder and former CEO of investment giant Guggenheim Partners, commented to Bloomberg TV that ETH is much more beneficial than BTC.

Investment potential.  As the cryptocurrency market matures, investors are starting to pay more and more attention to altcoins and, when making investment decisions, evaluate the long-term potential of the project. Since ETH is much cheaper than BTC, it also has a higher potential for price growth. The likelihood that ether will rise in price by 10 times and will cost more than $ 30,000 seems to be more than a similar rise in BTC to $ 500,000.

The DeFi and NFT markets, which are growing at an astronomical rate, will also fuel the future price rally. So, over $ 85 billion is now blocked in DeFi protocols – and a year ago this figure was only $ 7 billion. The total sales of NFT exceeded $ 217 billion. All this increases the demand for ETH and leads to an increase in the price of the coin. As a result, more and more cryptocurrency investors are considering ether as one of the best options for long-term investments.

Margo Pazhinskaya, a financial analyst at the DotBig investment platform, said she believes that, unlike BTC, as well as many other altcoins, the growth points of ETH are quite understandable – they largely depend on the technologies that the Ethereum platform develops and implements.

Dmitry Kolotov, an entrepreneur, investor and founder of the Sarapul Systems company, told us that Bitcoin is not the best investment in the potential for 10 years. The potential for its rapid growth is almost exhausted. BTC will definitely not grow tens, and even more so hundreds of times – after all, then the coin will cost several times more than all the gold in the world, and this is unlikely.

Institutional Investor Interest. Large investors are increasingly looking at the ETH – while they are investing not just in a coin, but in the Ethereum ecosystem as a whole. For example, the Grayscale Investments ETH Trust, the world’s largest digital asset manager, has over $ 10 billion in assets.

Environmental friendliness. With the transition to PoS, energy consumption in Ethereum will be reduced by 99%. Gradually, the factor of energy consumption will become more and more important, especially for institutional investors.

How soon can Ethereum overtake Bitcoin?

Ethereum’s versatility has attracted the attention of renowned financiers and investors who view the coin as an investment opportunity and as the most likely competitor to Bitcoin.

A number of experts believe that Ethereum will one day, and perhaps within the next few years, overtake BTC in terms of capitalization and use cases. For example, John Woo, President of Ava Labs, the developer of Avalanche, Dan Morehead, founder of the large cryptocurrency investment fund Pantera Capital, Mike Novogratz, founder and CEO of the crypto investment company Galaxy Digital, Nathan Cox, Chief Investment Officer of the Two Prime crypto fund, Mark Cuban, think so. billionaire investor, Charles Hoskinson, founder of Cardano and co-founder of Ethereum.

The May report of the investment bank Goldman Sachs said that:

 «Ethereum is the cryptocurrency with the highest real potential … and the most popular application development platform for smart contracts.»

Given the importance of real-world use cases for determining the true value of a project, investment bank experts believe that ETH has every chance to replace BTC as the main digital asset. They believe that Bitcoin’s current leadership is based solely on first-mover benefits and could easily be lost. The most likely candidate for the new leader is Ethereum.

In order for ETH to catch up with BTC in terms of capitalization, its price must rise to $ 8,000. But with such a bull market, bitcoin is unlikely to stand still, therefore, in order to confidently overtake bitcoin, ether needs to gain a foothold at a level of $ 10,000 to $ 20,000. Experts predict the coin a price of $ 4,000 – $ 5,000 by the end of the year, and up to $ 10,000 – $ 20,000 over the coming years. There is even a point of view that ETH could reach $ 100,000 by 2025.

Why is Ethereum not threatening Bitcoin’s status?

Despite all the technical advantages of Ethereum and the potential of its use, its future leadership is not at all guaranteed.

  1. Firstly, some of the problems bitcoin, because of which it is predicted to hopelessly lag behind the ether, can be solved. For example, we have already written that Bitcoin mining can be environmentally friendly – most of the mining of the coin can be transferred to the use of energy from renewable sources. The use of second-tier solutions, primarily the Lightning Network, can also solve the problem of slow and expensive transactions.
  2. Secondly, Ethereum isn’t the only tech-savvy project that powers DeFi smart contracts. There are dozens of strong alternatives on the market, such as Cardano, Solana, and Polkadot.
  3. Thirdly, the value of bitcoin is not in its manufacturability – it has long been perceived as a digital analogue of gold. The asset has every chance of becoming a generally accepted form of accumulation and preservation of wealth. And for these purposes, the speed of transactions is not important. Trust and safety are much more important. In this respect, bitcoin has no equal on the crypto market.

Most likely, in the coming years, the rate of development and growth in the price of the ETH will be higher than that of the MTC. Perhaps ether will overtake the first cryptocurrency in terms of capitalization, and perhaps in terms of price and market share. But even that won’t rob bitcoin of its digital gold status.

Ethereum is much more technologically advanced than Bitcoin and forms the basis for a huge ecosystem. But it does not compete directly with Bitcoin. And if the ether overtakes bitcoin by some indicators, this does not mean that the first cryptocurrency will be forgotten.

Dmitry Machikhin, partner at GMT Legal, noted that even as a means of settlement, ether has no special advantages over bitcoin:

«Continuous shortcomings, for example, inaccuracies in emission, premine, the ability to change the basic protocol, and so on.» 

The expert believes that Bitcoin can lose its leadership status only if a project appears on the market that can copy the main properties of BTC and be better in them. But so far, nothing like this exists on the market.

“Ether may overtake Bitcoin in market capitalization, but this will not have a long-term impact on the market. Bitcoin is the strongest brand in the crypto market, and stripping it of its pioneering and absolute leader status is like trying to replace the core of the Earth. At least for the next several decades, ” says Dmitry Machikhin.

Sergey Khitrov, founder and CEO of Listing.Help, believes that ETH will not be able to take the place of BTC, since these projects face completely different tasks. But in the event of serious changes in the market, ETH may well overtake MTC in terms of capitalization. For example, the transition of ether to the state of 2.0 or the tightening of Bitcoin regulation may contribute to this.

Sergey Khitrov noted that in order for ETH (or any other project) to take the first place in terms of capitalization and overtake BTC, a combination of a number of factors will be required:

  • network stability and security;
  • speed and low cost of transactions;
  • the breadth of use of cryptocurrency; recognition by government regulators;
  • demand from large institutional companies;
  • widely accepted by private investors.

But now no other cryptocurrency project has such a combination of factors. Therefore, in the near future, BTC will retain its place of the leader among cryptocurrencies in terms of capitalization.

In the dispute over the prospects of ether to become the market leader for investors, there is a practical conclusion: do not bet everything on one of the assets.

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