Ethereum’s Value Premium Over Bitcoin Is Slowly Being Acknowledged

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Ethereum (CCC:ETH-USD) was at $2,090 Friday morning, up from $730, or almost 190% year-to-date. Moreover, I suspect the cryptocurrency is likely to go on a massive run from here as more investors realize that its qualities as a digital currency exceed Bitcoin’s (CCC:BTC-USD).

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Here is an astounding fact. Ethereum’s rise is incredibly fast — it’s almost twice as fast as Bitcoin. For example, BTC is up nearly 100% year-to-date at $58,721, from its starting point this year of $29,374 per Bitcoin.

Moreover, a year ago Ethereum was at $170.81. That means its price today of $2,090 is 12 times the price a year ago. This is massive. Even Bitcoin is up only 8 times from its price a year ago of $7,302.

Playing Catch-Up To Bitcoin

So we have to acknowledge that something significant is going on here with Ethereum. We can’t ignore its rise, especially compared to Bitcoin. And that is the digital currency getting all the attention, even though Ethereum has significantly outperformed Bitcoin.

Keep in mind that Ethereum is the second-largest cryptocurrency, in terms of market capitalization. In other words, this is not a fly-by-night cryptocurrency. For example, its market capitalization, as measured by CoinMarketCap is $240 billion as of April 9. Compare that with Bitcoin. Its market cap is now over $1 trillion at $1,088 billion.

The point is that Ethereum is a significant currency within earshot of Bitcoin in terms of market cap. If Ethereum keeps on moving up like this compared to Bitcoin, its market cap will catch up.

I wrote about this two months ago and predicted that within 10 to 11 years, Ethereum’s price could catch up to Bitcoin in price. However, at the pace it is outperforming Bitcoin now, I suspect that occurs within eight to nine years.

Ethereum’s Value Over Bitcoin

Investopedia points out that the main difference between Bitcoin and Ethereum is that although both offer a decentralized payment system, Ethereum offers more. It can be used also for storing computer code to power tamper-proof financial contracts and apps. This gives it much more usefulness.

For example, recent developments with NFT (non-fungible tokens) have used Ethereum as the provenance caretaker, so to speak. As The Verge points out the developments of Ethereum’s NFTs are very unique to this cryptocurrency.

The second major difference is that Ethereum’s supply of Ether is not capped like Bitcoin. This is how it is explained by the Wall Street Journal:

“Unlike bitcoin, ether’s supply isn’t capped and its supply schedule is determined by members of ethereum’s community, according to CoinDesk.”

This implies that there will not be a scarcity issue with Ethereum like there is Bitcoin. That is not what will primarily be driving its price going forward. By contrast, the value of Ethereum will be its actual decentralized finance (what traders call “Defi”) and its smart contract capabilities.

This premium value idea is gaining attention from high-profile investors. Recently Mark Cuban, for example, believes “we are in a new hype cycle — around NFTs and smart contract capabilities associated with Ethereum,” according to Benzinga.

“(NFT) royalties got me to understand smart contracts and how simple it was to program this s**t. Decentralization and the fact that with smart contracts, you can control everything that happens in a transaction or a process.”

In the interview he gave to the Delphi Podcast, he said he thinks that NFTs and Ethereum are “really going to change the game.”

What To Do With Ethereum

I think the easiest thing most people should do with Ethereum is to allocate a small portion of their periodic investment contributions to this cryptocurrency. For example, allocating 10% of a normal contribution put towards stocks and/or real estate might be a good way to diversify into this crypto.

Keep in mind that the digital currency game is very volatile. It is not unheard of for the currency to dip 10% in one day or two. So be careful to not go overboard with this investment. Nevertheless, over time, investors should be able to expect that Ethereum will outperform Bitcoin.

On the date of publication, Mark R. Hake held a long position in Ethereum and Bitcoin.

Mark Hake writes about personal finance on mrhake.medium.com and runs the Total Yield Value Guide which you can review here.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.