Ethereum (ETH) vs. Bitcoin (BTC): Which Crypto Is the Better Buy Right Now?

Bitcoin's (BTC 0.37%) price more than doubled to a record high during the past 12 months. Four catalysts drove that rally: the approvals of Bitcoin's

As Bitcoin (BTC 0.37%) soared more than 100% over the past 12 months to hit a record high, several catalysts fueled that rally.

The approvals of Bitcoin's first spot price exchange-traded funds (ETFs) in January, its latest four-year halving in April, the Federal Reserve's two interest rate cuts, and Trump's victory in the presidential election all played a role in that historic price surge.

The ETFs made it easier for mainstream and institutional investors to invest in Bitcoin, the halving lowered Bitcoin's supply growth rate by reducing the rewards for mining in half, and the Fed's rate cuts will likely drive investors back toward cryptocurrencies, growth stocks, and more speculative investments. Trump's incoming administration is also expected to reverse the Biden administration's restrictions on the crypto market.

Those tailwinds certainly make the world's top cryptocurrency an attractive investment right now. But as Bitcoin hovers near its record highs, investors can also consider investing in smaller cryptocurrencies still trading below their all-time highs. Let's take a closer look at Ethereum (ETH 3.99%), the world's second-most valuable cryptocurrency, to see whether it fits the profile as a more compelling buy than Bitcoin right now.

The key differences between Bitcoin and Ethereum

Bitcoin is a proof-of-work (PoW) token that must be digitally mined with power-hungry ASIC (application-specific integrated circuit) miners. It has a finite supply of 21 million coinns, and almost 20 million of them have already been mined.

The difficulty of mining Bitcoin, which doubles with each four-year halving, is gradually slowing down that process. The last Bitcoin will likely be mined by 2140. That scarcity makes it more similar to gold, silver, and other precious metals than other cryptocurrencies.

Ethereum, which hosts ether as its native token, was once a PoW blockchain like Bitcoin. But in 2022, it transitioned to the more energy-efficient proof-of-stake (PoS) mechanism in a process called The Merge.

PoS tokens like Ethereum's can't be mined. Instead, its investors "stake" (or lock up) their tokens on the blockchain to earn interest-like rewards. Unlike PoW blockchains, PoS blockchains also support smart contracts, which are used to develop decentralized apps (dApps), non-fungible tokens (NFTs), and other crypto assets. That's why ether's value is often pegged to Ethereum's popularity among developers, while Bitcoin is more frequently valued by its scarcity.

Ether doesn't have a supply limit, and there are roughly 120 million tokens in circulation right now. It became deflationary after The Merge two years ago, but its fee-reducing Dencun upgrade this year made it inflationary again. Ethereum investors try to limit its supply by periodically burning (removing from circulation) a lot of tokens -- but that process isn't as predictable or transparent as Bitcoin's scheduled halvings.

Why has Ethereum underperformed Bitcoin?

Ethereum's price has rallied more than 50% during the past 12 months, but it underperformed Bitcoin and remains about 40% below its all-time high.

Ethereum's first spot price ETFs were approved and started trading this July, but they didn't generate as much buzz as Bitcoin's ETFs. Ether also didn't seem to attract as many bulls as Bitcoin did as interest rates declined, but it rallied alongside Bitcoin and the broader crypto market after the presidential election ended.

Two near-term challenges could be holding Ethereum back. First, it faces stiff competition from newer and faster PoS blockchains like Solana (SOL -0.33%) and Cardano (ADA 1.72%). Second, its growing supply is throttling its price growth.

But over the long term, some other tailwinds could kick in. Ethereum's next upgrade, "The Verge," will enhance its security features and lower its hardware requirements so it can run on smaller devices like smartwatches and Internet of Things (IoT) devices. UBS (UBS -2.24%) also recently launched its first tokenized fund on Ethereum's blockchain, which suggests it's still a more stable PoS platform than Solana or Cardano.

Some bullish investors expect Ethereum to soar. VanEck's Matthew Sigel and Patrick Bush expect its price to quadruple to $11,800 by 2030, while Ark Invest's Cathie Wood believes it could soar more than 5,600% to $166,000 by 2032.

However, I personally think it's still smarter to buy Bitcoin instead of Ethereum

Bitcoin is like digital gold, so its value should stabilize and rise against most fiat currencies. Ethereum tokens are still inflationary