For the first time in a long time, the cryptocurrency asset class seems to have a pulse. Since the beginning of 2023, the collective crypto market capitalization has skyrocketed around 25% and recaptured the $1 trillion mark, a level not seen since November.
The rise of cryptocurrencies in recent weeks has seen almost every cryptocurrency turn a profit, but there are two in particular that stand out from the crowd: Bitcoin (BTC -1.36%) Y Ethereal (ETH -3.91%).
I won't get any points for originality, but these two cryptocurrencies are the cream of the crop. Between them, they account for almost 60% of all cryptocurrency value (Bitcoin 42% and Ethereum 19%). Often as Bitcoin and Ethereum advance, so does the rest of the asset class.
The reason these two tokens occupy a class of their own is actually not that complicated. Although cryptocurrencies can sometimes seem too technical and misunderstood, keeping things simple is often one of the best ways to maximize potential.
The original cryptocurrency still has it.
Bitcoin, the world's first cryptocurrency, has led the asset class for more than 14 years. It dominates in large part due to the fact that, for a while, there simply weren't any other cryptocurrencies for investors to buy. This has changed over the past decade, but while there are now thousands of cryptocurrencies to choose from, Bitcoin still dominates.
Its continued leadership is likely due to a handful of reasons, including features such as its unrivaled decentralization and security, and its inherent scarcity, which supports the argument that it should be a great store of value. These traits have put Bitcoin in a class of its own and have sparked interest from more than just the average retail investor.
Since 2021, two countries have made Bitcoin a form of legal tender, the world's largest asset manager announced it would allow customers to own Bitcoin, and some publicly traded companies hold some Bitcoin instead of cash. If trends like these continue, Bitcoin is unlikely to lose its place as the most valuable cryptocurrency and will likely be the leader when a bull market returns.
The DeFi Champion
While Bitcoin is the leader, Ethereum is still the unshakable number 2. When Ethereum was invented in 2015, it completely changed the cryptocurrency landscape. Due to its programmable smart contracts, developers were able to create applications that ran on the Ethereum blockchain, something that is not possible with Bitcoin. With these smart contracts, new use cases such as non-fungible tokens (NFT) and decentralized finance (DeFi) were created.
Other blockchains supporting smart contracts have been created in recent years, but none have made significant progress in usurping Ethereum's dominance in that segment of the crypto world. No statistic shows this better than Ethereum's Total Value Locked (TVL), a metric that quantifies the value supported by blockchains in DeFi applications.
Like a company's market capitalization, TVL fluctuates, but as of this writing, Ethereum's TVL is just over $27 billion and represents around 60% of all value in DeFi. The next closest blockchain is BNB, with only $4.7 billion.
The huge market share advantage that Bitcoin and Ethereum have over their competitors are the main reasons why they will be in the driver's seat when a bull market in crypto returns. Also, and more importantly, almost all other cryptocurrencies are positively correlated with Bitcoin and Ethereum.
If there's one thing investors should learn after the 2022 debacle, it's that not every cryptocurrency deserves a place in your portfolio. Instead of trying to spot the next meme coin that could make an astronomical profit, and will probably go back to zero afterwards, investors should keep it simple. Since most of the asset class follows Bitcoin and Ethereum, why not own the two that are leading the way? Most likely they will continue their dominance.
rj fulton He has positions in Bitcoin and Ethereum. The Motley Fool has positions and recommends Bitcoin and Ethereum. The Motley Fool has a disclosure policy.
