Transcription
If you had the choice today, 25 Ethereum or one Bitcoin, what would actually make you richer? The answer depends on whether you're looking over the next 6 months, the next 5 years, or the next 20 years. Let's break this down using history, math, and what I think based on the current market signals happens next.
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So firstly, to understand what is likely to outperform versus Bitcoin or Ethereum, we need to go back into the history books. Starting with the 2017 cycle, where Bitcoin did a 20x, rising from $1,000 to $20,000. Started, Bitcoin was trading just below $1,000. By end November, Bitcoin's value had grown 10 times [music] from the start of the year. And then less than 2 weeks later, it almost doubled again. Before the year was out, Bitcoin futures were launched on two of America's biggest derivatives exchanges, no less. So fraud or no fraud, you can't ignore it now. And Ethereum did a 175x, [music] going from $8 to $1,400. So it's clear that in 2017, ETH massively outperformed Bitcoin. But this does make sense since ETH's market cap was so low when it first launched.
So, let's look at the 2021 bull run, which gives us a better picture of bull market returns on Ethereum versus Bitcoin. In 2021, Bitcoin went up a 7x from $10,000 all the way to almost $70,000. Comparatively, Ethereum did a 25x, [music] going from $200 to $4,900. ETH still significantly outperformed Bitcoin, but the gap narrowed versus 2017 as Ethereum's market cap became [music] bigger.
So that brings me to this cycle. How is Ethereum looking versus Bitcoin right now? We know it has diminishing returns based on the past cycles versus Bitcoin. But will those returns diminish to the point where Bitcoin becomes a better risk adjusted asset? Well, let's dig into what's actually happening right now on Ethereum versus Bitcoin. We are starting to see the spot ETF inflow for Ethereum pick up after Bitcoin took a heavy lead. We saw companies like Micro Strategy heavily bidding up Bitcoin and now we are seeing similar treasury companies cropping up for Ethereum. Tom Lee obviously being one of the biggest pioneers. This has caused a slightly lagged run on Ethereum versus Bitcoin, but a definite catchup as the market starts to play that rotational trade from Bitcoin into Ethereum as we've seen across many cycles in crypto. Thus, the Ethereum Bitcoin chart is now in an uptrend, and it actually looks like it may have put in a bottom for the cycle. ETH often runs after Bitcoin consolidates. So, it makes sense after such a big Bitcoin run that we are finally starting to see this rotation. I think given this trend, the likelihood is that this cycle, balance of probabilities, Ethereum actually outperforms Bitcoin. For example, if Bitcoin went from roughly today's value of $110,000 to $220,000, that would represent a 2x. Whereas, if Ethereum 3x'd from its current value to roughly $12,000, the equivalent value of 25 Ethereum, which is worth around $110,000 as well, would be worth over $300,000, representing 30% stronger gains than Bitcoin.
But here's where it gets interesting. Even if Ethereum outperforms in the shorter term, this cycle, we also know that Bitcoin is historically the safer asset during downturns. Ethereum's had massive, massive draw downs in the past. So has Bitcoin. But Ethereum because it's more of a risk asset and because it's a higher beta crypto play, it typically unravels quicker than Bitcoin as well. So although I do think this cycle Ethereum probably is the better bet, things get interesting as you start to look longer term. Because although Ethereum runs up more aggressively during bull runs because it draws down more aggressively, the risk-adjusted picture over a longer period of time may actually start to skew in the favor of Bitcoin.
So let's look at the midterm case for Bitcoin. There's an institutional snowball. We're finally starting to see institutions allocate more heavily to Bitcoin. We're seeing stocks continue to make new all-time highs. Gold continue to make new all-time highs. We're seeing fiat dilution continuing to occur. And this all works in the favor of Bitcoin which is viewed as I guess crypto safe haven asset or digital gold. Although technically it's still a risk asset and it isn't a risk-off asset. It is treated like digital gold and we are starting to see interest on the institutional side and also recently the sovereign and international side starting to back up this thesis. That is a narrative that Ethereum doesn't have. Ethereum on the other hand is viewed as more of a tech bet. It's viewed as a proxy to get exposure to the growing stable coin narrative and tokenized RWA asset narrative. So it's viewed as a broader technology play. Bitcoin is a money play. ETH is a technology play. Technology plays are more cyclical. Bitcoin, if it truly establishes itself as a money play, probably has a bit more longevity. So when you actually think about it, Bitcoin doesn't have many competitors. Bitcoin's competitor in some ways is gold and in some ways is the dollar. Whereas Ethereum's competitors, well, there are many of them. There's Solana, there's Sui, there are all these blockchains. That's just within the crypto space. And then there are traditional rails, you know, Stripe, Visa, also operating system interfaces which don't rely on blockchain rails, which in some ways are competitors to Ethereum as well, although they don't represent competition as direct as, let's say, a Solana does. So, I think it's safe to assert Bitcoin as crypto's biggest asset and viewed as crypto's digital gold has a [music] tangibly stronger long-term moat versus Ethereum, which has more competition. And I think these headwinds for Ethereum slightly lower the bull case in the longer term. Remember, we're not just talking about how much you can make here. We're also discussing risk-adjusted returns because if you can squeeze out an extra 30% on ETH, but you're taking on an extra 300% [music] risk or 100% risk, then it's actually the worst play going for Ethereum, you're better off going for Bitcoin, [music] which maybe it's slightly fall shy of Ethereum in terms of returns, but ends up being the better risk-adjusted play. Investors look to go into strong risk-adjusted plays, not just strong nominal plays in terms of returns. But Ethereum definitely has some firepower given the fact that it has a lower market cap. So it actually could run up a lot more aggressively in the interim. [music] So even if it has a bigger drop, it could still end up outpacing Bitcoin in the shorter term. I think ETH can actually outperform midterm. But Bitcoin is probably the stronger and safer play in the market, which makes me when I'm looking, let's say, with a 5-year outlook, want to allocate more to Bitcoin than Ethereum. Personally more so around 80/20 Bitcoin to Ethereum ratio. I view ETH as a tech bet. I view Bitcoin as harder money and more of a gold-like holding in my portfolio to hedge against inflation and currency debasement versus Ethereum, which is a bet on network [music] effect and rapid technology growth. Both assets are valid to hold in your portfolio, but both serve very different purposes. And your hard money is obviously going to take up a larger portion of your portfolio than your super aggressive risky tech bets.
Now, let's look out from 5 years and start looking even longer term to 10 years. This is where things become a little bit murkier for Ethereum and I think a little bit clearer for Bitcoin. I mean, over 10 years, even 10 to 20 years, we're going to see such rapid job displacement with AI. We're going to see the world completely change. We're going to see more currency debasement. And I think Bitcoin is better positioned in that scenario to become a genuine inflation hedge, especially as the government prints more money to try and get itself out of this hole. Bitcoin is naturally a liquidity sponge. Typically goes up and is extremely correlated to global liquidity which make it a much more certain bet than Ethereum which is still murky because you're relying on adoption verticals. So what do I mean by that? It's very clear over the longer term that currency [music] will keep debasing. So it's very likely that Bitcoin benefits. It's not as clear over the longer term that Ethereum will maintain its moat that staking will continue to be attractive that other competitors don't grow or outpace adoption faster than ETH. There are just more question marks. I think ultimately that's a summary long term. There are question marks over Bitcoin as well. What does happen after the next couple of halving's? Are the miners going to be incentivized? What happens when quantum comes in? Although that's very far down the track. Is it truly going to be seen as a digital gold or will it keep being traded like a risk asset? So, Bitcoin by no means is a truly certain bet, but it is more certain.
So, I guess the right choice whether you would hold 25 Ethereum or one Bitcoin today totally depends on your time horizon. I genuinely do think the Ethereum basket is probably better for this cycle. Of course, you should never pick one or the other. You should wait accordingly. But I do think ETH is probably outperforms this cycle. I even think over the next few years due to its relative outperformance this cycle that it may end up being the better bet. But as you go longer term, as you look 5 to 10 years ahead in the future, Bitcoin is the much clearer bet. Thus, any profits I make on Ethereum, I will still look at taking into Bitcoin because I think Bitcoin has a genuine shot of becoming a safe haven asset longer term.
But let me know in the comments below, what would you rather hold, 25 Ethereum or one Bitcoin? And make sure to [music] subscribe to my new channel, Crypto Edge, for more content like this using the link in the description below. I'll see you guys in the next one. Peace out. [music] [music]