The Future of Cryptocurrency
An Investor s Comparison of Bitcoin and Ethereum
Ryerson University Alexander D Alfonso,
October 17th, 2016 Peter Langer,
Zintis Vandelis
,Abstract
Bitcoin and Ethereum are two highly disruptive cryptocurrencies looking to leverage
blockchain technologies to drive innovation across numerous industries. The objective
was to analyze each cryptocurrency to develop the ideal investment strategy for a
$1,000,000 investment which must be held for five years without any additional
trading.
To develop an ideal investment strategy, we analyzed both currencies. After looking at
the qualitative similarities and differences between each currency, we analyzed the
historical performances of each and extrapolated these values to form a five-year
projection. Conversations with industry professionals helped to identify the most
probable and impactful factors for the future demand of both currencies. After
incorporating our results and accounting for variance, we ran simulations to predict the
expected values given a range of inputs and factors.
After weighing these findings, the appropriate investment ratio proved to be 69:31 for
Bitcoin and Ethereum respectively. Bitcoin offered a higher expected value, but the
volatility and speculative nature of cryptocurrencies indicated a need for diversification
across platforms.
The Future of Cryptocurrency | An Investor’s Comparison of Bitcoin and Ethereum | Page 1
, Table of Contents
Abstract ............................................................................................................................................ 1
Table of Figures ............................................................................................................................... 3
What is Money Anyway? ............................................................................................................. 4
The Investment ............................................................................................................................. 5
The Contenders ............................................................................................................................. 5
Will History Repeat Itself? ........................................................................................................... 8
Out with the old, In with the New ................................................................................................ 9
Emerging Market Uptake........................................................................................................ 10
Financial Institution Uptake.................................................................................................... 10
Major Regulation / Deregulation ............................................................................................ 11
Major Network Compromise .................................................................................................. 12
Global Economic Event (Business Cycle) .............................................................................. 12
E-commerce Uptake ............................................................................................................... 13
Financial Technology (‘Fintech’) Uptake............................................................................... 13
Quantitative analysis ................................................................................................................... 14
Investment Strategy .................................................................................................................... 15
Combined Model Results: ...................................................................................................... 15
Conclusion .................................................................................................................................. 16
References ...................................................................................................................................... 18
Appendices ..................................................................................................................................... 21
The Future of Cryptocurrency | An Investor’s Comparison of Bitcoin and Ethereum | Page 2
An Investor s Comparison of Bitcoin and Ethereum
Ryerson University Alexander D Alfonso,
October 17th, 2016 Peter Langer,
Zintis Vandelis
,Abstract
Bitcoin and Ethereum are two highly disruptive cryptocurrencies looking to leverage
blockchain technologies to drive innovation across numerous industries. The objective
was to analyze each cryptocurrency to develop the ideal investment strategy for a
$1,000,000 investment which must be held for five years without any additional
trading.
To develop an ideal investment strategy, we analyzed both currencies. After looking at
the qualitative similarities and differences between each currency, we analyzed the
historical performances of each and extrapolated these values to form a five-year
projection. Conversations with industry professionals helped to identify the most
probable and impactful factors for the future demand of both currencies. After
incorporating our results and accounting for variance, we ran simulations to predict the
expected values given a range of inputs and factors.
After weighing these findings, the appropriate investment ratio proved to be 69:31 for
Bitcoin and Ethereum respectively. Bitcoin offered a higher expected value, but the
volatility and speculative nature of cryptocurrencies indicated a need for diversification
across platforms.
The Future of Cryptocurrency | An Investor’s Comparison of Bitcoin and Ethereum | Page 1
, Table of Contents
Abstract ............................................................................................................................................ 1
Table of Figures ............................................................................................................................... 3
What is Money Anyway? ............................................................................................................. 4
The Investment ............................................................................................................................. 5
The Contenders ............................................................................................................................. 5
Will History Repeat Itself? ........................................................................................................... 8
Out with the old, In with the New ................................................................................................ 9
Emerging Market Uptake........................................................................................................ 10
Financial Institution Uptake.................................................................................................... 10
Major Regulation / Deregulation ............................................................................................ 11
Major Network Compromise .................................................................................................. 12
Global Economic Event (Business Cycle) .............................................................................. 12
E-commerce Uptake ............................................................................................................... 13
Financial Technology (‘Fintech’) Uptake............................................................................... 13
Quantitative analysis ................................................................................................................... 14
Investment Strategy .................................................................................................................... 15
Combined Model Results: ...................................................................................................... 15
Conclusion .................................................................................................................................. 16
References ...................................................................................................................................... 18
Appendices ..................................................................................................................................... 21
The Future of Cryptocurrency | An Investor’s Comparison of Bitcoin and Ethereum | Page 2
