As it stands now, Ethereum (CCC:ETH) is the silver to Bitcoin’s (CCC:BTC) gold. The “altcoin,” or alternative cryptocurrency, is up nearly 90% since the beginning of the year. At today’s prices (around $1,400), though, is this crypto topping out, or just getting warmed up for another epic move higher?
It’s hard to tell. On one hand, you can make a solid bull case for Ether (what the crypto itself is called, Ethereum refers to the network). Namely, because this cryptocurrency has what it takes to eventually supplant the top dog in this asset class.
On the other hand, nothing’s for certain when you’re talking about crypto. As it remains in its infancy, only time will tell whether it’ll live up to the promises its true believers make, or if 20 years down the road, we’ll all have a nostalgic laugh about the “early 21st century crypto bubble.”
That’s not to say you should avoid this asset class completely, but bear in mind the big downside risk if today’s speculation subsides. Sure, with more institutional interest, Ethereum may not see the 90%+ collapse it saw when the last crypto bubble burst.
Yet, if you are looking for a less risky way to gain crypto exposure, you may better off sticking to bitcoin.
There’s a Mostly-Solid Bull Case for Ethereum
As InvestorPlace’s Muslim Farooque broke it down, Ethereum’s “smart contract” platform may make it a more disruptive force than bitcoin itself. Add in the potential for demand to outstrip supply, and it seems like a slam dunk that this leading “altcoin” will continue to catch up to its better-known peer.
If it all plays out as expected, Ether could produce outsized returns relative to bitcoin. The total value of this crpyto stands at $162.2 billion today. By comparison, the total market value of BTC is $687.8 billion. In other words, more room to run.
It’s akin to what you see when smaller stocks in hot sectors with returns far above their larger comrades. For example, in the past year, Tesla (NASDAQ:TSLA) has rallied nearly 637%, but Nio (NYSE:NIO), a smaller, similar name in the electric vehicle space, has soared 1,286%.
It’s not set in stone this crypto will continue to outperform. Sure, it’s outperforming relative to BTC, but it still largely trades in tandem with it. If crypto markets crash yet again, don’t expect Ether to hold steady. In fact, as it remains the less established coin, there’s greater downside risk.
Why You Don’t Want to Bet the Ranch on ETH
Some may be buying Ether on the basis that its technological merits will make it increasingly valuable in the years ahead. It seems as though many more may be speculating in it based on the “store of value” narrative. That is, buying it in the hopes it continues to skyrocket as the “smart money” dives in.
However, given that the same factors apply to the bull case for bitcoin, why not skip this more volatile crypto, and go with the less-risky option?
Sure, BTC is by no means immune from big declines. We’ve seen that full well, from its volatile move from over $40,000, to under $30,000, and then back up to around $34,000 today. But, as the more established crypto, chances are it has less room to fall than Ether does, whenever today’s crypto enthusiasm cools.
InvestorPlace’s Joel Bagole had a similar take in his story on Ethereum. Bitcoin has gained critical mass, but altcoins like this one may not be ready just yet for prime time. If speculators in Ether panic, and head for the exits en masse, prices could fall dramatically.
As I mentioned above, this crypto fell more than 90% during the 2018-2019 crypto crash. The emergence of institutional money into Ether may help soften the blow, but this is still something you don’t want to invest in with money you can’t afford to lose.
For Crypto Exposure, Go With Bitcoin Instead
Given its many advantages, I can see why some are bullish on Ether not only catching up to bitcoin, but supplanting it as the number one cryptocurrency (a possible event that’s been coined “the flippening“). However, it’s still too soon to say this will happen.
Meanwhile, you can still gain exposure to the “institutionalization of crypto” trend by just buying bitcoin. While I don’t recommend adding to positions right now, I continue to hold my small position in BTC, primarily due to this factor.
Bottom line: if you are looking for crypto exposure, don’t buy Ethereum. Instead, buy its better-known rival.
On the date of publication, Thomas Niel held a long position in bitcoin.
Thomas Niel, a contributor to InvestorPlace, has written single stock analysis since 2016.