In a recent x.com/Matt_Hougan/status/1803767313566724108″ target=”_blank” rel=”nofollow”>comment Shared on maintain a position in bitcoin (btc). Hougan offered three compelling reasons for investors to embrace eth, while he presented a critical point of view for continuing to invest solely in btc.
ethereum vs. bitcoin: 3 reasons in favor of ethereum
Hougan began by emphasizing the importance of diversification within cryptocurrency investments. Drawing an analogy to the early days of the Internet, he pointed out how difficult it is to predict which technologies or companies will dominate in the long term. “It's very difficult to predict the future accurately,” Hougan said, referring to investors who bet on early Internet companies like AOL and Pets.com, which failed to keep their early promise despite the Internet's overall growth.
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Applying this lesson to cryptocurrencies, Hougan recommended a diversified approach to protect against similar uncertainties. ethereum's current market cap stands at roughly $420 billion, which is substantial, but still only about a third of bitcoin's $1.3 trillion market cap. Given these figures, Hougan proposed a default initial allocation of 75% bitcoin and 25% ethereum for investors looking for broad market exposure.
Hougan's second point delved into the functional differences between bitcoin and ethereum. He described bitcoin primarily as “a new form of money,” highlighting its design choices intended to improve its utility as a sound monetary system. “Every design choice the bitcoin ecosystem makes is designed to make bitcoin the best form of money that has ever existed,” he stated, underlining bitcoin's objective development towards optimizing its use as a currency.
In contrast, ethereum is characterized by its role as a fundamental technology for creating new applications that take advantage of its programmable money capacity. This includes everything from issuing stablecoins to enabling complex decentralized finance (DeFi) ecosystems.
“The main function of ethereum is to make money programmable,” Hougan explained. He maintained that ongoing development within the ethereum ecosystem provides broader exposure to the potential applications of blockchain technology, which is still in its nascent stages.
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The third argument in favor of ethereum focused on historical performance data. Hougan noted that historically, portfolios that included ethereum along with bitcoin showed better performance metrics, both in absolute terms and when adjusted for risk, across full crypto market cycles.
“What I like most about that table is that the +eth portfolio has higher returns and a lower maximum drawdown,” he noted. This historical analysis suggests that ethereum could offer better downside protection and higher potential returns, although Hougan cautioned that “past performance is no guarantee of future returns” and noted that in recent shorter periods, a strategy based solely on bitcoin would have had better performance.
Counterpoint: Why a bitcoin-Only Strategy May Be Preferable
Addressing the other side of the coin, Hougan discussed why many investors might prefer a bitcoin-only strategy. This perspective is especially relevant to those concerned about macroeconomic issues such as fiat currency debasement and inflation.
Hougan posited that bitcoin's dominant position and its community's focus on becoming a new form of money make it likely that it will continue to lead this space. “It has a big upside, and size matters in money,” she said, supporting the idea that bitcoin's simplicity and focused use as digital gold could be more attractive for certain strategic investments.
“Money is a huge market. There is plenty of room for btc to run if it is successful. (…) My opinion, in a word: if you want to make a broad bet on cryptocurrencies and public blockchains, you should own multiple crypto assets. If you want to make a specific bet on a new form of digital money, buy bitcoin,” Hougan concluded.
At press time, eth was trading at $3,514.06.
Featured image created with DALL·E, chart from TradingView.com
