By 2022, most crypto investors saw Bitcoin (BTC) as a better hedge against recessions. But in 2023, Ethereum (ETH) may be a better choice. Ethereum offers a wide variety of use cases. Businesses now use Ethereum for enterprise-grade solutions, increasing its utility significantly. Motley Fool crypto expert Dominic Basulto explains why Ethereum should be preferred over Bitcoin for investment.
Ethereum could be crypto to buy
Signs of a global economic slowdown coming are everywhere these days. In mid-January, the World Bank warned that one would happen this year, led by weak growth in the US, Europe and China. Therefore, the threat of a recession should be kept in mind for anyone considering investing in crypto this year.
While it’s not possible to make your crypto portfolio recession-proof, there are steps you can take to make your portfolio more resilient. Investing in Ethereum may be the best way to achieve this goal.
Bitcoin is losing its shine
But wait, you’re probably asking: Isn’t Bitcoin the best crypto to hold in the event of an economic downturn? Before 2022, this belief could be valid. But as events from last year have shown, Bitcoin is not a hedge against recession, as was once thought. First, Bitcoin can no longer claim to be unrelated to the broader market. It was that no matter what stocks or other assets did, its value would continue to rise. But in 2022, it fell, like any other risk asset, as macroeconomic headwinds intensified.
cryptocoin.comAs you follow on, Bitcoin has dropped by about 65% in 2022. This disastrous demonstration led to a reassessment of the entire investment thesis that ‘Bitcoin is digital gold’. The purpose of buying gold is to have a reliable store of value. If Bitcoin can’t hold its value in tough times, it’s pointless to claim it’s digital gold.
Although Ethereum has also fallen by more than 65% in 2022, the story is very different if you only factor in the last six months of the year. This period covers the months leading up to The Merge and the next three months. Something seems to have clicked with investors as they realize how valuable Ethereum can be. Since June 30, Ethereum has risen more than 45%, while Bitcoin is only up 8% despite the January rally. Even if you only factor in year-to-date earnings, Ethereum still has the advantage.
Why is Ethereum (ETH) better than Bitcoin (BTC)?
One reason Ethereum has recently outstripped Bitcoin may be because of its enormous diversification advantages. While Bitcoin can only be used for online payments, Ethereum has a much wider range of possible use cases. For example, it has become the leading blockchain for decentralized finance (DeFi) applications. Ethereum is also the market leader when it comes to Non-Fungible Tokens (NFT). Since 2015, the number of uses people and businesses find for Ethereum has exploded. There are now metaverse worlds built on Ethereum, Blockchain games built on Ethereum, and new decentralized applications running on Ethereum.
Moreover, Blockchain is increasingly integrated into the technology stacks of the world’s largest companies. Financial institutions on Wall Street are now using Ethereum’s Blockchain technology for their new payment mechanisms. Consumer-facing brands are adopting Web3 solutions built on top of the Ethereum Blockchain. The Enterprise Ethereum Alliance currently has more than 200 member organizations actively working to integrate blockchain in creative yet practical ways, such as tracking shipments and deliveries globally.
All this integration with the real world makes Ethereum much more resilient to the ups and downs of the economy. You can think of Ethereum as a well-diversified conglomerate with hands on almost every niche of the blockchain and crypto world. For example, NFTs may not thrive during a recession, but if DeFi does, it will support the token’s value.
Staking rewards should not be forgotten either.
An additional factor in Ethereum’s favor is the ability for token holders to earn passive income through staking. You can now stake your Ethereum on popular cryptocurrency exchanges, earning close to 4% per annum. This may not sound very good. But it provides an additional plus for holding tokens. In contrast, Bitcoin does not offer the ability to earn staking rewards as it is a Proof-of-Work (PoW) cryptocurrency. If you are buying crypto and holding it long term, staking Ethereum can be an effective way to increase your returns.
Is it time to buy Ethereum?
However, Ethereum may not be able to diversify the full risk of a difficult macroeconomic situation. Some analysts predict that Ethereum price could drop below the psychologically important $1,000 level in 2023. This represents a more than 33% drop from its last price of around $1,500. As with all cryptocurrencies, there is always downside risk and volatility.
However, I can’t think of a better way to diversify your crypto portfolio right now than investing in Ethereum. You have access to the full diversity of the Ethereum ecosystem, with the diversity it offers across the full spectrum of economic activities and industries. Even if the US and the world avoid a recession this year, I am bullish on Ethereum both in the short term and the long term.
The opinions and estimates in the article belong to the experts and are definitely not investment advice. Therefore, we recommend that you do your own research before investing.
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