Better Long-Term Crypto Hold: Bitcoin or Ethereum?

Sometimes an asset's simplicity can be an advantage, but it pays to check whether that's actually true or not before you buy.

That brings us to the oldest rivalry in crypto, Bitcoin (CRYPTO: BTC) versus Ethereum (CRYPTO: ETH). These two coins represent fundamentally different bets for those who plan to hold them over the long term, so let's dig in and determine which one is the better candidate.

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Bitcoin isn't going to change much

On March 10, the 20 millionth bitcoin was mined, meaning that 95% of the coins that will ever exist are already in circulation. Only about 1 million coins remain to be mined, and those will take roughly 114 years thanks to the halving mechanism, which cuts the new supply issuance in half every four years.

It's this decreasing availability of the coin's supply that forms the foundation of its investment thesis. Its halving schedule hasn't deviated in its entire history, and likely won't.

Today, an estimated 3 million to 4 million of the digital tokens are permanently lost.

Nonetheless, demand continues to increase. Spot Bitcoin exchange-traded funds (ETFs) have pulled in $56 billion in cumulative net inflows since their launch in early 2024. Corporate treasuries are growing their holdings, too, as are certain governments that have opted to retain any coins they acquire.

To continue growing over the long run, Bitcoin doesn't need to add any major new features. It simply needs to keep running as programmed, slowly becoming adopted by more and more actors, all while less and less is produced each day. And that will remain true even if market or macro factors crash its price or keep it depressed for a while, which is a powerful advantage for those with a long time horizon.

Ethereum's capabilities are also vulnerabilities

Ethereum is more capable than Bitcoin by virtually any functional measure. It hosts about 68% of all value locked in decentralized finance (DeFi) protocols, currently around $53 billion. Bitcoin doesn't support smart contracts, so it can't host a single dollar of DeFi value.

Ethereum also leads in tokenized real-world assets (RWAs), which are traditional instruments like bonds whose ownership is tracked on-chain -- but no features enable this activity on Bitcoin. Furthermore, around 32% of Ethereum is staked, which is to say that it's locked in for the purpose of securing the network in exchange for a yield. Bitcoin doesn't have a native yield.

The challenge with Ethereum compared to Bitcoin is that each strength also entails a risk.

Retaining DeFi leadership and continuing to grow its ecosystem both require Ethereum to keep winning app developers over rival chains, as well as investors' capital. Winning in tokenized assets means building up institutional confidence, which could shift if a competitor presents itself in a more polished way. And many other blockchains offer staking, some with better yields or shorter lockup periods.

So if Ethereum doesn't continue to develop its network and consistently outperform its competitors, it could see some of its resources flow elsewhere, potentially permanently.

In contrast, Bitcoin just needs to keep being Bitcoin. It's a widely accepted scarce store-of-value asset. Nobody cares if it can't run smart contracts or hold DeFi value because nobody expects it to change much, and it doesn't.

Bitcoin is thus the more reliable hold over the long term because fewer things need to go right for it to continue growing. Ethereum is still a good purchase for your crypto portfolio, and it might even outperform Bitcoin. But it's already in constant competition with its peers across all its core segments, and there isn't much it offers that isn't available elsewhere at lower transaction costs.

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.