Let’s say someone were to hand you $1M to invest between two primary cryptocurrencies, Bitcoin and Ethereum. How would I recommend they allocate their capital based on a simple pro & con assessment? Exciting right?! Let’s go over the pros of Bitcoin(BTC first).
Pro #1: Bitcoin is a heavily adopted, scarce asset that has been heavily adopted globally to further the cause of decentralized finance. The first and largest pro is digital scarcity. Currently, in the world, there are about 47M millionaires. That’s a lot of millionaires! The thing is if each of these millionaires wanted to own 1 Bitcoin, they couldn’t. This asset has an extreme level of scarcity and if it ever becomes adopted by more countries and states, and if we see more millionaires in the future – we know that there is a lot of upside potential in the price primarily due to the scarcity. To elaborate this point even further, as the supply decreases even further crypto exchanges may have an even harder time getting ahold of it in the future. If there is a situation in which crypto exchanges can’t get supply to distribute to their customers, it will cause a bidding war to the miners, causing the prices to increase.
Pro #2: The removal of non-value added middleman and corruption. The list goes on for too long of countries that have carried out poor monetary policy at the expense of citizens’ financial wellbeing. While there may have been a point in time where BTC was used for illicit purposes, this mostly has been flushed out of the system. All fiat currencies eventually come to an end or become reset. The beauty of having a BTC is the fact that it will be around for a very long time. It is not prone to the folly of bad actors at this point as it is SHA 256 encrypted. Many governments and those in traditional finance fear Bitcoin. These people fear the fact that since it is deflationary, and if a crisis were to come that the fixed supply will be a negative impact on citizens. I don’t see this being a negative impact whatsoever, as even owning a small amount of Bitcoin will help secure your financial future whether there is a catastrophic event, hyperinflation, or an economic collapse.
Con #1: While it is true that Bitcoin does remove a lot of corruption and non-value added middlemen, it is prone to bans and restrictions by the government (in any country). We’ve seen this in Turkey, India, mining in China, and many other countries. By nature, governments tend to want control of their citizens. One form of control is that in a monetary form. The issue is, the government can’t control the BTC source code and inflate, deflate the monetary supply. They have no way to give handouts if a crisis were to come. There is tremendous lobbying by the traditional financial services world for the government to put additional regulation and restrictions on this asset class as a form of control.
Con #2: The layer one technology isn’t the most advanced and there are more advanced blockchain protocols that offer faster transactions per second, with lower fees that are better for the environment. Furthermore, while SHA256 is encrypted, it could potentially be hacked one day and an exploit like this could cause tremendous waves in the market, if not a total collapse. Something to consider is that quantum computing could potentially pose a risk to the cryptocurrency markets in ten to twenty years.
We discussed the major pros and cons of Bitcoin, but what about Ethereum (ETH)?
Pro #1: The most important thing about Ethereum to consider is that it is looking to decentralize all types of applications. It is a decentralized operating system. Just like Bitcoin was trying to decentralize finance (banks, credit unions, etc.), Ethereum is looking to decentralize Google, Facebook, Insurance, and any inefficient thing. Throughout time, we have seen countless examples of big tech silence or oppose certain lines of thought. Through decentralized apps or dAPPs this will change in the future.
Pro #2: An ecosystem where you don’t need permission to build. There isn’t too much of a barrier to entry, and with no barrier to entry, you get so many great problems being solved (some of which we didn’t even know existed). It truly is a beautiful thing. In a world of being credentialed, caught in the system, red tape, and policy, this isn’t needed anymore. If you want to create an ERC-20 token that isn’t an issue. What is cool is that if you can vision it, you can build it out on an excellent network that will transform the way we interact with others whether that be art, gaming or insurance.
Con #1: Just as I mentioned how there isn’t much of a barrier to entry, this also leads to many bad actors being able to create ERC-20 tokens and scam people. Countless rug pulls or scams are coming out that have been built on the Ethereum network. It is a double-edged sword, this very blade that can fight against socialism, control, and red tape can also harm people in the community. Countless influencers have come out promoting crypto rug pulls like Ethereum Max or Save the Kids. In reality they get paid out by the protocol and the influencers/ software developers line their pockets, and the crypto community/ audience is caught holding the bag.
Con #2: The lack of a max supply is another big con. Too much circulation makes the price go down, and while I do see some valid points in inflationary mechanisms, this decreases what Ethereum should be worth. Another con I couldn’t pass up is the fact that Ethereum 2.0 is way behind schedule, and this is due to the lack of leadership amongst the developers and disorganization in the going-forward plan.
So if I were to win the lottery, or someone gives me $1M how would I allocate it between these two cryptos?
I would recommend putting 70% in Bitcoin (BTC) and 30% in Ethereum (ETH). Something to consider though, what are you going after? Do you believe more in digital scarcity and economic security, or do you believe more in an operating system that moves power to the edges? Can you see Ethereum disrupting big tech, which is a $10 trillion industry? Can you see Bitcoin disrupting gold which is a $10 trillion industry? I can, but as someone in the financial world, I place higher emphasis on scarcity hence why I am putting 70% into BTC and 30% into ETH.
Disclaimer: Nothing stated in this video is a recommendation from PieceofPaul to buy or sell a particular security or asset class. You should wisely consider your tolerance for risk, time horizon, and financial goals before making an investment. With investing, you run the risk of losing money, always read an investment prospectus and make an informed decision before allocating capital to a particular investment.