Bitcoin vs. Ethereum: Which Is the Better Long-Term Buy?

Bitcoin (CRYPTO: BTC) commands 58% of all the cryptocurrency sector's value, and Ethereum (CRYPTO: ETH) holds 9%. The gap between their shares is the widest in years, and at the same time, the mechanics underpinning these assets have substantially changed what each is intended for.

The question of which one is the better long-term buy depends on what you already own, so let's compare the two and determine what the best course of action is for your portfolio.

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Scarcity is the name of the game

In the past, both of these coins were sold on their scarcity, but only one of them actually lives up to the marketing right now.

Bitcoin's supply is hard capped at 21 million coins, about 95% of which are already in circulation. The network presently issues about 164,250 Bitcoin (BTC) per year; after the next so-called halving in 2028, that figure will be slashed by 50%. There isn't any mechanism for Bitcoin's maximum supply to increase, nor for its rate of issuance to increase. Over the long run, that means there will be less new Bitcoin available to buy, which theoretically will cause buyers to compete with each other in the form of higher prices.

On the other hand, Ethereum's scarcity is only conditional, and it isn't necessarily going to see its rate of new issuance or its circulating supply trend in either direction over time. After the Dencun upgrade in March 2024 incentivized user activity to migrate from the Ethereum main network onto cheaper layer 2 (L2) networks, the amount of on-chain fees used to burn coins collapsed; the coin's supply is now expanding at a net pace of roughly 0.23% annually. That pace could increase, or it could decrease, and the coin's supply could decline for a time. It all depends on how much activity there is on the main chain. But even fairly large amounts of activity won't burn enough coins to benefit holders immediately.

Staking the coin earns just 2.8% to 3.5% annually for the risk. But a Bitcoin holder owns a fixed slice of a shrinking-issuance asset regardless of whether its network registers a lot of activity.

So which one should you actually own?

Bitcoin is the crypto sector's anchor store of value. Nothing else seriously competes for that slot. Most likely, nothing ever will. That means it's going to remain valuable.

Ethereum is not a substitute for that, as it solves a different problem (decentralized smart contract finance). Still, its competition is everywhere. Coinbase Global's chain, Base, may have stripped $50 billion from Ethereum's market cap on its own last year by capturing fees that would otherwise have gone toward burning coins, per Standard Chartered's Geoff Kendrick. Ethereum's own scaling roadmap, by design, is pushing away the very traffic that holders need in order to get a better return.

The counterargument is Ethereum's incredible degree of optionality. The chain hosts the largest share of tokenized real-world assets (RWAs) and over half of the sector's circulating stablecoins. If regulated tokenized equities, money market funds, and stablecoin settlement scale to trillions of dollars in value over the next four or five years, as many expect, the level of on-chain activity could look very different. It's also the biggest network for smart contract finance in general, which will likely lead to new growth segments emerging from its ecosystem over time.

Nonetheless, if you hold no crypto at all, the order of operations starts with buying Bitcoin. Its price movement inevitably drags the rest of crypto along for the ride, and it asks the fewest assumptions of a long-term holder; it doesn't need to change to stay relevant across cycles. Ethereum could be a decent add-on once that Bitcoin position is in place, and your traditional portfolio is diversified.

But, compared to Bitcoin, it's simply a much riskier bet. Bitcoin is the better long-term buy if you could only choose one of these coins. It's also perfectly reasonable to hold both.

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