Justin is an active trader with more than 20-years of industry experience. He has worked at big banks and hedge funds including Citigroup, D. E. Shaw and Millennium Capital Management.
If any cryptocurrency were to become the world’s recognised measure of value, then buying a position in altcoins arguably offers one of the greatest investment opportunities in the history of the financial markets. It’s a big ‘if’, but even the possibility is enough of an attraction for many to take even a small position in one or more of the cryptos in the market. Which one, or ones, is of course, the question. Taking this into account, this article will cover these points:
Altcoins are all the other cryptocurrencies launched after the success of bitcoin. They are any cryptocurrencies other than Bitcoin. At last count, there were 5,392 of them. All cryptos generally work on the same principles, but altcoins sell themselves as second generation or next generation alternatives to Bitcoin.
The cryptocurrency total market capitalisation fluctuates a lot. As of September 2020, it was in the region of $350bn. Bitcoin usually makes up at least 50% of the total market cap.
Bitcoin holds a strong position in the market. The loophole the altcoins exploit is based on the fact that all cryptos, including bitcoin, represent a new way of doing things, it’s just that they do it better.
The excitement surrounding each one is magnified by the general consensus that even if cryptocurrency does replace fiat money as the global currency, there is realistically only space for one winner.
There is a lot of jargon and technological advances such as ‘block-chain’ involved in each of the cryptos. By setting up their background infrastructure in different ways, each Altcoin system is trying to improve its chances of success.
They might vary in terms of transaction speed or cost. Some prioritise their role as a store of value, others as a form of currency to be used in transactions.
Each tries to learn from the mistakes of earlier coins and keep the good bits but upgrade where they can.
Let’s take the growth of Ethereum August. This is a cryptocurrency that almost doubled in value in the space of four weeks. Its price move represents fiat money being transferred into crypto. Even after such an incredible increase in value, there is still a long way to go in terms of fiat money converting to crypto.
Cryptocurrencies, including bitcoin and altcoins combined, currently make up one-third of one-percent of the world’s total money. Fiat currencies still dominate.
The potential for crypto prices to sky-rocket makes sense if you think that cryptos will make up 5% or even 10% of the world’s total money in two years’ time.
The breakdown of the top 10 cryptos by market capitalisation throws up the names of some coins worthy of being the best altcoin:
Source: Coin Gecko
One salient point to note is that bitcoin has a greater market capitalisation than the rest of the top 10 combined.
Let’s explore this ranking and the top altcoins to invest in.
Launched by Vitalik Buterin on July 30th 2015. Buterin was a researcher and programmer working on Bitcoin Magazine. He proposed that bitcoin be upgraded via the introduction of a scripting language.
When his idea was rejected, he crowd-sourced funds to set up his own platform.
Originally intended to compliment bitcoin, ethereum is now a rival to it. Ethereum’s transactions use ‘executable code’, which means transactions are faster than those using bitcoin. Supporters of ETH believe ETH has a chance of becoming the world’s global currency because of this faster reporting of transactions.
Ripple also trumps Bitcoin in terms of processing speed. Transaction costs are also lower. Both features give XRP an advantage in the race to become a widely used source of currency.
Bitcoin Cash represents Bitcoin trying to catch up with the altcoins that offer faster and cheaper transaction processing. The Bitcoin Cash network now handles many more transactions per second than the Bitcoin network can.
Bitcoin Cash was once part of bitcoin itself, but a ‘fork’ was put in place, which set the new coins up with more user-friendly code.
Transactions in Bitcoin cash cost $0.20
Polkadot was founded in 2014 by Gavin Wood who was at one time CTO of Ethereum. In the same way that ETH was designed to upgrade BTC, so DOT was intended to complement rather than challenge ETH.
It hasn’t quite worked out that way, and while ethereum aims to be a platform for distributed finance and smart contract execution, polkadot is designed to help people build entire blockchains.
ChainLink is a decentralised oracle network founded in 2014 and headquartered in the Cayman Islands, with parent company, SmartContract. Price strength has been attributed to (LINK-USD) being able to attract a large number of new users.
It acts as ‘middleware’ and has caught the eye of many investors because it has been seen to hold its price while other cryptos have slumped. It still follows the crowd when prices go up, but is more resilient when bearish forces come into play.
Binance Coin is the official token of the Binance cryptocurrency exchange platform. This is significant because the Binance exchange, which was founded in 2017, has grown to become the largest exchange of its kind globally in terms of overall trading volume.
Being the in-house currency of the exchange means BNB can be easily exchanged into dozens of different cryptocurrencies. It can also be used to pay for goods and services, including travel fees and so ticks the box in terms of being a usable form of exchange.
Cardano was created years after bitcoin and Ethereum, and has learnt from their mistakes. It’s something of an ‘alt-altcoin’ and continues to put through technical upgrades at a rate some of the established operators can’t match.
Charles Hoskinson, Cardano’s founder and CEO, calls it a third-generation cryptocurrency. He willingly points to ADA already having some of the features that earlier cryptos are still struggling to implement.
Bitcoin SV is a product of another ‘fork’ in bitcoin. It is billed as strictly following Satoshi Nakamoto’s 2008 white paper for Bitcoin.
The big difference is the size of the block. Being larger in size, bitcoin SV, intends to offer a cheaper and more efficient payment system.
Billed as ‘The next Generation Public Blockchain’, CRO is pitching itself at the transactional end of the market. Founded in Hong Kong in 2016, it stresses its open-source approach to development.
It has commercial tie-ups with existing payment operators such as VISA, which strengthen its claims as an altcoin likely to make a breakthrough into mass-circulation.
The big disclaimer is that even the most ardent fans of cryptocurrencies have to acknowledge that the playbook might not pan out as they think it will. The value of cryptos is therefore binary. They have the potential to be worth an incredible amount, or on the other hand, could end up being worthless.
This polarisation of outcomes is why cryptos are associated with such high price volatility. From day to day, opinion can shift on whether the price of a particular coin is going to the moon or heading for a crash landing.
That volatility provides investors with the option of three trading strategies:
The first group are willing to take a position in crypto and forget about it. The second group will study price moves more closely and trade in and out of positions based on their research.
It may well be that traders blend the two strategies together. There’s never anything wrong with locking in some profit.
The third strategy involves changing the amount of your crypto portfolio allocated to Bitcoin and Altcoins.
One theory that is popular among crypto enthusiasts is that altcoin prices tend to lag bitcoin price moves. The phenomenon known as ‘Alt Season’ is part of the overarching crypto market cycle when Altcoin prices ‘moon’ (spike upwards) against bitcoin and fiat currencies.
One of the altcoins could lead decentralisation of the internet and become a global means of measuring and transferring wealth. The uncertainty on the issue means that going ‘long’ in alts can make you 1,000% gains but also 90% losses.
The alt market needs to be treated with a lot of respect. Those committed to gaining exposure would do well to be very disciplined in terms of position size. The standard risk management rules apply, only more so.
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