Which Crypto To Invest In: Bitcoin, Ethereum, Or Litecoin?

Bitcoin, Ethereum, and Litecoin are all cryptocurrencies with dedicated followers. But which one should you invest in? This is a complex question with no easy answer. Each cryptocurrency has its own unique features, advantages, and disadvantages. Bitcoin is the most well-known and highly valued cryptocurrency, but Ethereum is also popular and has some technical advantages over Bitcoin. Litecoin, on the other hand, has been around for a while and has a strong following, but it doesn't have the same brand recognition as the other two. So, which one will you choose?

Bitcoin's status as a safe haven asset

Bitcoin is often described as a safe-haven asset, but is it? Well, it depends on who you ask. Some analysts and publications have defined it as such based on market data, and it is certainly revolutionary. Bitcoin is the first-ever decentralised currency, and with only 21 million bitcoins able to ever exist, it is also the first asset that is provably digitally scarce.

However, others argue that Bitcoin's status as a safe-haven asset is undermined by its historical volatility and its fall during the 2020 stock market crash at the height of the COVID-19 crisis.

Research into Bitcoin's safe-haven status has examined its relationship with other assets, including gold, crude oil, stocks, bonds, and various fiat currencies. One study found that gold, monetary markets, and bonds have volatility spillover effects on Bitcoin, while Bitcoin only has a volatility spillover effect on the gold market. This suggests that gold, in particular, can serve as a safe haven for Bitcoin.

Another study found that Bitcoin moves together with the stock markets but is also hedged against stocks, bonds, and the Shanghai Interbank Offered Rate (SHIBOR). This indicates that Bitcoin can be a safe haven when extreme price changes occur in the monetary market.

While Bitcoin may not be a safe haven asset yet, its trajectory suggests that it is working its way there.

Ethereum's technological improvements

Ethereum is a decentralised, open-source blockchain system that features its own cryptocurrency, Ether. It is the second most popular cryptocurrency after Bitcoin. Ethereum's blockchain was designed as a “one computer for the entire planet”, theoretically able to make any program more robust, censorship-resistant, and less prone to fraud by running it on a globally distributed network of public nodes.

Blockchain

Ethereum's blockchain is designed to execute smart contracts and host other cryptocurrencies, or "tokens". It is a powerful platform for global coordination, but it is still being improved. An ambitious set of improvements will upgrade Ethereum from its current form into a fully scaled, highly resilient platform. These upgrades are laid out in the Ethereum roadmap.

The Ethereum roadmap outlines specific improvements that will bring the following benefits to users:

• Cheaper transactions
• Enhanced security
• Better user experience
• Future-proofing

Upgrades are made regularly to enhance Ethereum's scalability, security, or sustainability. One of Ethereum's core strengths is its adaptability as new ideas emerge from research and development.

Ethereum's blockchain has completed its main technological change since its inception, moving from proof of work to proof of stake during The Merge. This solved its environmental issues but failed to address its scalability challenges.

Smart Contracts

Smart contracts are self-executing deals with terms cooked right into the code. They are computer programs that automatically execute the actions necessary to fulfil an agreement between several parties on the internet. They reduce the need for trusted intermediaries between contractors, thus reducing transaction costs while also increasing transaction reliability.

Ethereum's blockchain was the first to execute smart contracts using the blockchain, further reinforcing the already existing benefits of smart contract technology.

ERC-20 Compatibility Standard

Through the use of its ERC-20 compatibility standard, Ethereum's blockchain is able to host other cryptocurrencies, or "tokens". This has been the most common use of the ETH platform so far. To date, more than 280,000 ERC-20-compliant tokens have been launched.

EIPs and ERCs

Ethereum Improvement Proposals (EIPs) and Ethereum Request for Comments (ERCs) are also key to Ethereum's technological improvements.

EIPs are collaborative proposals for enhancements to the Ethereum network, ensuring its ongoing development and resilience. They are technical write-ups or proposals that describe suggested changes or enhancements to the Ethereum network. EIPs serve as the backbone of Ethereum's development, allowing community members and developers to propose changes and enhancements to the Ethereum protocol.

ERCs are technical documents employed in the Ethereum ecosystem. They are a subset of EIPs but serve a unique purpose – they define the standards for the Ethereum platform, including core protocol specifications, client APIs, and contract standards. ERCs promote interoperability and reduce development complexity.

Ethereum Name Service (ENS)

Ethereum Name Service, or ENS, is a distributed and extensible naming system based on the Ethereum blockchain. ENS provides a solution to the problem of long and confusing crypto addresses by assigning human-readable names to machine-readable identifiers such as Ethereum addresses, metadata, other cryptocurrency addresses, and content hashes.

Bitcoin's user adoption rates

Bitcoin's adoption peaked in 2021 with over 41 million BTC addresses holding at least $1 worth of BTC. In an August 2023 report, around 77% of crypto owners in the U.S. said they own Bitcoin, while 36% of crypto owners globally hold BTC, making it the most owned crypto. The U.S. leads in BTC trading volume globally at around $1.5 billion.

Bitcoin's status as a store of value, interest from institutional investors, layer 2 scaling solutions, and the anticipation of Bitcoin ETFs are factors driving its global adoption. However, challenges to widespread adoption include high price volatility, centralised exchange risk, regulatory uncertainty, and the complexities of blockchain technology.

The crypto community is waiting for the approval of a spot Bitcoin exchange-traded fund (ETF) by the U.S. Securities and Exchange Commission (SEC). Financial giants like Blackrock, Fidelity, VanEck, ARK Invest, and Galaxy Digital are all awaiting approval of their ETF applications. Such a decision could boost Bitcoin adoption and drive up its price.

Bitcoin specialists predict that the cryptocurrency could surpass its previous peak and potentially reach the $100,000 milestone in the upcoming year.

Ethereum's staking ability

Staking Ethereum involves depositing 32 ETH to activate validator software. Validators are responsible for storing data, processing transactions, and adding new blocks to the blockchain. By performing these functions, validators help to secure the Ethereum network and are rewarded with new ETH in the process. The more ETH that is staked, the stronger the network becomes against attacks, as it requires a majority of the ETH in the system to control it.

Staking Ethereum also has a lower environmental impact than Bitcoin mining. Unlike Bitcoin's energy-intensive mining process, Ethereum staking does not require energy-intensive proof-of-work computations. This means that staking nodes can run on relatively modest hardware using very little energy.

The current average reward rate for staking on Ethereum is around 3.41%, with an average ETH staking APY of roughly 4%. However, this can vary depending on various factors, such as the number of validators on the network and network activity.

In addition to the potential rewards from staking, Ethereum also has a higher level of complexity and versatility compared to Bitcoin. While Bitcoin was designed primarily for digital payments, Ethereum is a platform that supports a complex financial ecosystem, including smart contracts, NFTs, decentralised finance (DeFi), blockchain gaming, the metaverse, and Web3. This makes Ethereum a more attractive option for investors who are looking for more than just a digital currency.

Bitcoin's spot ETF

Bitcoins Spot ETF

A spot Bitcoin exchange-traded fund (ETF) is an investment vehicle that allows ordinary investors to gain exposure to Bitcoin's price movements. It provides a regulated method for mainstream investors to invest in Bitcoin via their brokerage accounts. Investors in spot Bitcoin ETFs pay management and brokerage fees. The first Bitcoin spot ETFs were approved in January 2024, three years after the first Bitcoin futures ETFs.

Spot Bitcoin ETFs are exchange-traded products (ETPs) that securely store Bitcoins in digital vaults, with registered custodians managing them. This type of ETF mirrors the price of Bitcoins in the crypto market. The ETF purchases Bitcoins from other holders or authorised cryptocurrency exchanges, and the tokens are then kept in a digital wallet, often with multiple layers of security, including cold or offline storage to reduce the risk of hacking.

The ETF then issues shares corresponding to the number of Bitcoins it holds, and these shares are available on traditional stock exchanges. The share price generally reflects the currency's prevailing market price, closely tracking the price of Bitcoin, with the ETF occasionally rebalancing its holdings by buying or selling tokens.

Spot Bitcoin ETFs have several advantages, including convenience, liquidity, regulatory oversight, and potential tax benefits in certain jurisdictions. They provide a more accessible way to invest in Bitcoin, removing the technical challenges of managing a cryptocurrency wallet and addressing security concerns.

However, there are also risks associated with spot Bitcoin ETFs, including crypto volatility, regulatory uncertainty, security risks, management fees, and tracking errors. The approval of spot Bitcoin ETFs is expected to positively impact the price of Bitcoin by increasing adoption, market validation, trading activity, and reduced premiums.

Should You Invest in Bitcoin, Ethereum, or Litecoin?

When considering whether to invest in Bitcoin, Ethereum, or Litecoin, it is essential to understand the key differences between these cryptocurrencies. Bitcoin was designed as a simple digital payment method, while Ethereum supports more complex software and a range of applications, including non-fungible tokens (NFTs), decentralised finance (DeFi), blockchain gaming, the metaverse, and Web3. Litecoin, on the other hand, is a fork of Bitcoin with a faster transaction confirmation time and lower fees.

As of August 2024, Bitcoin remains the most highly valued cryptocurrency, with a market cap of over $1.3 trillion. Ethereum is the second-largest cryptocurrency by market cap, valued at around $270 billion. Litecoin, while not as widely recognised, has a market cap of over $5 billion.

Each cryptocurrency has unique features and use cases that may appeal to different investors. Bitcoin has gained greater acceptance by traditional finance, as evidenced by the approval of spot Bitcoin ETFs. Ethereum, with its ability to support smart contracts, has a growing ecosystem of applications and is attracting increased interest from Wall Street. Litecoin, with its faster transactions and lower fees, may be attractive for those seeking quicker and cheaper transactions.

Ultimately, the decision to invest in Bitcoin, Ethereum, or Litecoin depends on your investment goals, risk tolerance, and market analysis. It is crucial to carefully consider the risks and potential rewards before investing in any cryptocurrency.

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