Should You Own Ethereum Instead of Bitcoin?
Ethereum (CCC:ETH-USD) prices have been all over the map as the cryptocurrency market has fallen into a volatile bear market. Ethereum, Bitcoin (CCC:BTC-USD) and others have crumbled under a barrage of headlines and uncertainty.
At one point this year, crypto could do no wrong. Tweets from Tesla (NASDAQ:TSLA) CEO Elon Musk were driving up Bitcoin and Dogecoin (CCC:DOGE-USD), while retail and institutional investors were getting long too.
At the same time, high-growth stocks, SPACs, the NFT market and other speculative assets were flying higher. It was ridiculous and borderline insulting to the traditional investor. As a result, it only made sense for there to be a painful, sharp pullback.
Even high-quality growth stocks plunged into a bear market amid that correction (which I believe is a buying opportunity). But low-quality stocks were obliterated, with many falling more than 60%. Cryptos were hammered too, with Bitcoin and Ethereum falling 53.7% and 60.5% at the recent low, respectively.
But Are They Worth Owning?
Ethereum actually has pretty attractive qualities. As I’ve said in other articles at InvestorPlace over the past year, I’m not a blind and raging bull on this industry. I personally view cryptos as speculative, but that doesn’t mean I don’t see potential in it.
Digital currencies do have potential, but likely not all of them.
All of these alt-coins need to prove to investors why they’re worth buying. Specifically, they need to prove why they’re worth owning over something more widely acknowledged — like Bitcoin and Ethereum.
Bitcoin made some waves earlier this week when El Salvador announced that it would make the cryptocurrency a legal tender. That helped spur a rally in Bitcoin at precisely the right time. For now, the group is finding a bid as a result. The question, is will it last?
Bitcoin vs. Ethereum
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Source: Chart courtesy of TradingView
Ether was intended to complement rather than compete with bitcoin, but it has nonetheless emerged as a competitor on cryptocurrency exchanges.
I think that’s a great way to put it, because these two digital currencies have a lot of similarities. But that doesn’t mean they were built to compete with one another.
Bitcoin “was created as an alternative to national currencies and thus aspires to be a medium of exchange and a store of value.” On the other hand, Ethereum exists more for actual applications — for using it.
Ethereum operates as a Decentralized Finance (DeFi) platform, while also executing what are called smart contracts. That’s “a coded contract that can execute itself automatically when certain conditions are met. Imagine an insurance policy that paid out without you needing to even make a claim.”
Ethereum is also what’s powering the NFT market.
Lastly, transactions via Ethereum are confirmed in seconds, while it can take minutes for Bitcoin. Not to sound silly, but imagine the inconvenience of a single checkout taking several minutes.
When you break it down, the two really are not intended to be direct competitors. But that’s what happens when the market views these two as competing cryptocurrencies. Given that you can trade both, that perception seemed inevitable.
I like Ethereum. That doesn’t mean I hate Bitcoin or believe it’s doomed. While this group goes through periods of hysteria — and thus painful corrections — I have a hard time believing it will be killed off. Particularly when countries are allowing it as legal tender.
Bottom Line on Ether
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Source: Chart courtesy of TrendSpider
Just like I suggested a basket approach for owning Advanced Micro Devices (NASDAQ:AMD) and Nvidia (NASDAQ:NVDA), I like that concept with cryptocurrencies too. To be fair, I do like Ethereum’s properties over Bitcoin. However, Bitcoin is so widely known and recognized, it’s hard to imagine it faltering while others like Ethereum continue higher.
This group tends to trade in similar fashion with one another. Although, it’s worth pointing out that Ethereum traded much better than Bitcoin after the latter topped out following the Coinbase (NASDAQ:COIN) debut in April.
I don’t want to own all of the cryptos, but once they have some bullish trends again, I want to own the majors. All of them act as a “store of value,” whether or not that was the creators’ intention or not. Ethereum has too many use cases to be ruled out irrelevant — at least at this point.
Let’s see if the group can break out back above the short-term moving averages or whether we need one more washout to the downside. Above its 21-day moving average puts $2,900 in play. Above $3,000 and Ether is back in rally mode.
On the downside, a break of the June low likely puts the 21-week moving average in play, along with the $2,000 level. Below that and Ethereum could test down into the 200-day moving average.
On the date of publication, Bret Kenwell held a long position in NVDA and AMD. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.