Even if you’re new to investing in crypto, you’ve doubtlessly heard a lot about both Bitcoin (BTC -2.34%) and Cardano, (ADA -4.95%) but likely for a very different set of reasons.
Let’s take a look at this pair to see which one is a better pick for an investment of $5,000.
The case in favor of buying Bitcoin
There are a handful of reasons why Bitcoin belongs in nearly every investor’s portfolio, starting with its status as the anchor of the entire cryptocurrency sector. It’s an asset with a market cap of $1.9 trillion, millions of holders, and nobody at the wheel, except for its protocol, which is very difficult to change.
The main mechanism driving higher Bitcoin prices in the future is that it gets harder and harder to mine it over time. Furthermore, there can only ever be a maximum of 21 million Bitcoins that are ever produced, meaning that its purchasing power will not get eroded by the issuance of new coins on a long enough timescale. Therefore, as individual investors, governments, companies, banks, and other institutions buy some of the coin to get exposure to it for the sake of hedging against inflation, the price will rise, as buyers will be competing for fewer and fewer circulating coins.
So far, that plan is working out well for buyers who are willing to hold on to their coins for long enough. Over the last five years alone, Bitcoin’s price rose by 897%. And, as the chain has recently been upgraded to include the ability to mint non-fungible tokens (NFTs) and thus potentially to track real-world assets on its blockchain, there could be additional sources of demand for it down the line, assuming those uses take off.
Nonetheless, few would say that the coin is technically innovative these days. Even fewer would say that it’s inexpensive or quick to use, as its gas fees are substantial, and many transactions take tens of minutes to close. Those drawbacks aren’t necessarily a major threat to its value given that it’s already established, but it does suggest that its core technology is no longer a major component of its investment thesis.
Why Cardano could work for some investors
In contrast to Bitcoin, Cardano is a much newer and flashier blockchain.
It offers significantly lower fees, faster transactions, a smart contract programming language, and a project ecosystem that features a handful of decentralized finance applications, as well as a couple of meme coins and other projects. Its market cap is only $26.1 billion, making it a tiny fraction of Bitcoin’s size.
To some investors, that size differential says everything they need to know. It’s likely far easier for a smaller asset to experience huge growth than a much larger one. The coin’s performance over the last five years somewhat confirms that bias, with its price rising by more than 1,300%. The real questions are whether the coin can continue to grow faster than Bitcoin over the next five years, and whether it’s as safe of an investment for those who buy it today.
On that front, Bitcoin is almost certainly the safer asset. Cardano’s supply is not capped, which means that the operators of the chain can issue more tokens as needed to fund further development, thereby diluting investors in the process. There is 31% of the coin’s possible supply waiting in the wings to be issued. If the chain could generate significant demand for the coin consistently over time, that amount wouldn’t pose any serious problem for investors.
On the other hand, if a much larger direct competitor like Solana or Ethereum were to continue to attract more marginal buyers, it’s possible that Cardano’s ecosystem will become starved for capital.
There’s reason to believe that’s already happening; emerging cryptocurrency segments like artificial intelligence (AI) infrastructure, AI agents, and meme coins aren’t cropping up nearly as strongly on Cardano as they are elsewhere. And that makes the prospect of investing in it today somewhat risky, even for fairly risk-tolerant investors.
So, if you’re looking to invest $5,000, the better choice is probably Bitcoin for most investors. Those who are willing to use a long-term strategy of buying and holding it will have a much lower chance of losing their money. Cardano could still work for those who are seeking an aggressive growth asset — just be aware that it isn’t the best in its class, and that the risks to its momentum are increasing rather than declining over time.
Alex Carchidi has positions in Bitcoin, Ethereum, and Solana. The Motley Fool has positions in and recommends Bitcoin, Cardano, Ethereum, and Solana. The Motley Fool has a disclosure policy.
