Why Some Long-Term Investors Favor Ethereum Over Other Digital Assets

Ethereum (CRYPTO: ETH) is pretty much never the cheapest, nor the fastest, nor the smoothest blockchain to use. Still, some long-term investors prefer owning it to other cryptocurrencies, because they're buying an asset with exposure to a critically important platform within the crypto ecosystem more than they are depending on any single feature of that platform to deliver a return.

So if you care about what can still be relevant in crypto in five or 10 years, Ethereum's mix of steady economic activity on-chain, ongoing tech upgrades, and high degree of traditional finance access are hard to ignore as a package. Let's dive in and look at these factors a bit more.

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This chain is the default for quite a few activities

Ethereum is far and away the most established general-purpose smart contract chain, and that status is the most important reason why it's valuable. Decentralized finance (DeFi) activities, meaning on-chain lending, trading, and collateral management, concentrate where the most liquidity and integrations already exist, which, in the crypto sector, effectively means that every dollar that flows in has good odds of settling on Ethereum either temporarily or permanently.

One metric to watch on this front is DeFi total value locked (TVL), which corresponds to the dollar value of assets deposited into DeFi apps. Ethereum leads all other chains on TVL today, with $69.4 billion in TVL, and there is no reason to expect that to change anytime soon, as for a long time the chain's name was effectively synonymous with DeFi.

Ethereum is also constantly being upgraded to offer better features and higher efficiency to users and app developers. Recently, the chain has experienced a pace of two major updates per year, which is considerably more than most of its peers.

It's a store of value, too

Ethereum's supply is not capped like Bitcoin (CRYPTO: BTC), but it's not trying to be Bitcoin with extra features either. Under its proof-of-stake (PoS) design, the network's validators lock up their coins to secure the network and earn a reward; that reward is provided by issuing new Ether and adding to the supply. And, during transactions, which incur gas fees, a portion of the fees are burned, removing them from circulation permanently.

Importantly, Ethereum's ongoing fee burn can and often does exceed its ongoing issuance, so its circulating supply can shrink during busier periods. That makes the coin a store of value, even if its supply isn't anywhere near as scarce as Bitcoin's is -- and being a store of value with as much utility as Ethereum is another big reason why many long-term investors prefer to hold it.

Finally, the coin now has a handful of different institutional on-ramps, which helps to attract and retain institutional capital. Ethereum exchange-traded funds (ETFs) are nothing new at this point, but they do help to increase the asset's legitimacy and make it more appealing to those who have a more conservative temperament when investing.

There's no other crypto asset that's precisely as appealing as Ethereum. That doesn't mean you should buy it if you aren't quite tolerant of risk, but if you want to hold any crypto beyond Bitcoin, you should probably hold at least some Ethereum.

Alex Carchidi has positions in Bitcoin and Ethereum. The Motley Fool has positions in and recommends Bitcoin and Ethereum. The Motley Fool has a disclosure policy.