I get this question all the time. People have a few thousand USD, have been hearing all about Bitcoin’s unfathomable returns and want to invest in some cryptocurrency. They aren’t interested in being a day trader, they just want to buy and hold. They sign up for Coinbase where they inevitably see that there are two other cryptocurrencies to choose from.
Then they ask, “should I invest my money in Bitcoin, Litecoin, or Ethereum?” Even if they’ve done a little research – they normally still aren’t sure how to proceed. I don’t generally like giving investment advice, but I love to answer questions about crypto. Invariably, I end up giving a quick overview of each choice.
I’m going to recap the basic points below:
Bitcoin started it all. It’s been around for almost a decade. It gets the most media attention. It has brand recognition. Institutional money has been vocal about Bitcoin, almost exclusively. This year, Bitcoin has been subject to several forks and its community has fractured along philosophical lines about what Bitcoin should be.
Some want Bitcoin to be digital gold. Others want Bitcoin to be digital cash. Both sides have a lot to gain financially from “winning” the battle to be the “True Bitcoin”. This can lead to confusion for those new to the market…
If you are buying Bitcoin today, you have to pay attention to which Bitcoin you’re buying. As of today, Coinbase only offers Bitcoin Core. Today (12-Nov-2017), also, Bitcoin Cash is making meteoric gains and Bitcoin Core is losing value proportionally. If you bought “Bitcoin” yesterday – today you may have realized it wasn’t the “best Bitcoin” to buy.
This market confusion may get worse before it gets better.
Litecoin has often pushed itself as the “silver” to Bitcoin’s “gold”. The technology behind the Litecoin network is basically identical to Bitcoin’s. Occasionally, Litecoin will test a new network tech for later inclusion on the Bitcoin network. Litecoin is not openly trying to overthrow any other project and there are no hyped-up Litecoin forks. You don’t hear much about Litecoin ETFs or institutional interest. Many investors love this lack of drama.
Litecoin wanted to function as the cash while Bitcoin functioned as the store of value. Bitcoin Cash has probably endangered that role for Litecoin.
Many new investors like the idea of “owning a whole coin” and so – if they only have a hundred dollars – they pick Litecoin. Buying for this sole purpose is not an intelligent investment methodology. If enough people do it, then it might work; but that still doesn’t make it a good strategy.
Ethereum is a platform first and foremost. Ether is the cryptocurrency part of the platform. You don’t buy one Ethereum – you buy one Ether. You can use that Ether to send money to others, just as you can with Bitcoin and Litecoin. Additionally, you can use Ether to interact with Apps built on the Ethereum platform.
If you like to tinker with tech – Ethereum has more to tinker with. If you want to play with Web 3.0 stuff, you can only do that with Ether right now. Ethereum is younger than Bitcoin and Litecoin, but it does have some corporate interest.
You should realize that because it is programmable, sometimes developers can make mistakes and lose Ether. This won’t really affect you if you are only holding your Ether on an exchange or in a wallet, but if you interact with Apps you must assume some risk.
You do not have to pick just one cryptocurrency. Diversification is a thing, even in crypto.
You will probably be better off investing in something you believe in. Crypto is very volatile, and the downswings can feel pretty bad – more so if you don’t believe in what you’re invested in.
Speaking of swings: do not panic sell! If you’re long-term, don’t panic when prices collapse. In fact, this is when you should buy more. Dollar-cost-averaging over time is a good strategy, especially with very volatile assets.
Get a hardware wallet. Having your crypto off of the exchange will save you from panic selling. It it also just much more secure.
What About You, Gwei?
I am a long-term holder – as long as I believe in a project I try to disregard the price. If the ideas or direction of a project fundamentally change, then I reassess and re-balance my portfolio.
There was a time that I adored Bitcoin. When I stopped loving it, I sold it. If the community around Bitcoin could ever stop dividing, I’d probably love it again.
I personally don’t invest in Litecoin. I don’t think it is an ambitious attempt at changing the world. I want to invest in making the world a better place.
Ethereum captivates me. The things it attempts to make possible inspire me.
Keep doing research. Put your money into what YOU believe in.
I’m passionate about blockchains. I’m excited about decentralization, autonomous organizations, cryptocurrencies, and uncensorable dApps.
I’m also overwhelmed – with questions about these cutting edge technologies. I want to understand the tech, the politics, and the implications of the blockchain revolution.
Most of all, I want to share what I discover – because broader understanding will lead to greater participation, more rapid adoption, and, subsequently, a better world.