Ethereum – Is It Worth Looking Beyond Bitcoin?

by
Leo Wealth

Harjot Singh Gill

Like the price jump in Bitcoin, Ethereum’s price has skyrocketed year to date, up 57%. Often bracketed as just another cryptocurrency similar to Bitcoin, Ethereum’s value proposition and use case are significantly different.

Unlike Bitcoin, whose primary value proposition is a store of value and an inflation-hedge asset, akin to gold – Ethereum is a decentralized smart contract platform. It allows Ethereum holders to build applications on the ETH blockchain and use Ethereum as a form of digital currency within the Ethereum ecosystem. Ethereum switched to a proof-of-stake (PoS) concept as opposed to the proof-of-work (PoW) concept popularized by Bitcoin in 2022. PoS  is a less computationally intense and more environmentally friendly mechanism for processing and creating new blocks on the Ethereum blockchain. The key difference between PoS and PoW is the method by which new blocks are added to the blockchain. With PoW, bitcoin miners must expend significant computational power to solve complex equations to successfully add a block to the blockchain. Whilst in PoS, owners of Ethereum use Ethereum as collateral to validate transactions on the blockchain.

Though Ethereum does not have a finite supply like Bitcoin, it does manage inflation by removing tokens from circulation in a process called burning. The burning process acts as a deflationary mechanism to control the supply of Ethereum in the market. As of April 2024, there is an estimated 120m Ethereum in circulation, with a market cap of $430 billion.  Through year-end 2023, approximately 1.2m ETH has been burned, resulting in a Ethereum supply decline of nearly 300 thousand tokens.

Despite these differences, Ethereum’s price has moved up alongside Bitcoin in the latest wave and may take the baton going forward as its own ETFs come up for approval. We believe an allocation to Ethereum aids in the diversification of overall crypto asset allocations and gives access to unique features within the crypto universe.


DISCLOSURES

The information provided is for educational purposes only. The views expressed here are those of the author and may not represent the views of Leo Wealth. Neither Leo Wealth nor the author makes any warranty or representation as to this information’s accuracy, completeness, or reliability. Please be advised that this content may contain errors, is subject to revision at all times, and should not be relied upon for any purpose. Under no circumstances shall Leo Wealth be liable to you or anyone else for damage stemming from the use or misuse of this information. Neither Leo Wealth nor the author offers legal or tax advice. Please consult the appropriate professional regarding your individual circumstance. Past performance is no guarantee of future results.

This material represents an assessment of the market and economic environment at a specific point in time. It is not intended to be a forecast of future events or a guarantee of future results.

Cryptocurrency is a digital representation of value that functions as a medium of exchange, a unit of account, or a store of value, but it does not have legal tender status. Cryptocurrencies are sometimes exchanged for U.S. dollars or other currencies around the world, but they are not generally backed or supported by any government or central bank. Their value is completely derived by market forces of supply and demand, and they are more volatile than traditional currencies. Cryptocurrencies are not covered by either FDIC or SIPC insurance. Legislative and regulatory changes or actions at the state, federal, or international level may adversely affect the use, transfer, exchange, and value of cryptocurrency. 

Purchasing cryptocurrencies comes with a number of risks, including volatile market price swings or flash crashes, market manipulation, and cybersecurity risks. In addition, cryptocurrency markets and exchanges are not regulated with the same controls or customer protections available in equity, option, futures, or foreign exchange investing.

Investments in commodities may have greater volatility than investments in traditional securities, particularly if the instruments involve leverage. The value of commodity-linked derivative instruments may be affected by changes in overall market movements, commodity index volatility, changes in interest rates or factors affecting a particular industry or commodity, such as drought, floods, weather, livestock disease, embargoes, tariffs and international economic, political and regulatory developments. Use of leveraged commodity-linked derivatives creates an opportunity for increased return but, at the same time, creates the possibility for greater loss.

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