The crypto boom has been intense. At this point, given how far and fast Bitcoin (CCC:BTC-USD) has moved this year, it makes more sense to buy some other altcoins. Moreover, it’s more likely that Bitcoin will not rise as fast as other cryptocurrencies, given its sheer market capitalization size (about $1 trillion). Lastly, other cryptos have potentially more appealing traits, such as no mining, dividends, and more useful blockchain characteristics.
As a result, I have put together a short list describing seven non-Bitcoin alternative cryptocurrencies in which investors might consider investing. These altcoins could, as a group, make a good deal more money than just an investment in Bitcoin.
But don’t overdo it. Altcoins like these should only be a set portion of one’s portfolio. As the last several weeks have shown, they can be quite volatile. But, over the long term, there is a good chance they will outperform Bitcoin.
My choices for the top altcoins are:
Coincidently, each of the cryptocurrencies, except for Dogecoin and VeChain, can be bought by setting up an account at Coinbase (NASDAQ:COIN). Coinbase is the largest crypto exchange and wallet. I believe that Dogecoin and VeChain are under consideration by Coinbase for trading in the near future.
Let’s dive in and look at these alt-coins.
Altcoins: Ethereum (ETH-USD)
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Price: $2,564.98
Market Capitalization: $296 billion
Ethereum is the second-largest crypto after Bitcoin. But it has significantly outperformed Bitcoin. It is up over 200% in 2021, compared to Bitcoin, which has risen around 85% year-to-date.
Moreover, a year ago this time, Ethereum was around $197. Therefore, today’s price of $2,564 is 13 times the price a year ago. By comparison, Bitcoin was at $7,795, so, at $54,938 today, it is around 7x.
This is a significant outperformance. One reason for the disparity is that its blockchain technology is gaining more acceptance. It can power tamper-proof financial contracts and apps. This makes it more useful than Bitcoin. Moreover, its blockchain technology is useful for NFTs (non-fungible tokens). As The Verge points out, Ethereum’s blockchain technology supports many NFTs.
Another major difference is that Ethereum’s supply has no supply cap, like at Bitcoin. As The Wall Street Journal points out, its supply is determined by members of Ethereum’s community, not a pre-determined limit like at Bitcoin. This gives its supply certain flexibility. It allows the crypto to act as both a store-of-value (SOV) and also as a medium-of-exchange (MOE).
Cardano (ADA-USD)
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Price: $1.32
Market Capitalization: $41.8 billion
Cardano is different from both Ethereum and Bitcoin, as its blockchain platform is a proof-of-stake system (“Ouroboros”). This is different from the proof-of-work system of Ethereum and Bitcoin (although Ethereum is slowly converting over).
Ouroboros validates transactions without requiring crypto mining and other high-energy usage actions. It uses certain validators, who put up a stake that is at risk, who attest to a particular blockchain’s authenticity and get rewarded as a result. By contrast, miners in a proof-of-work system act as the validators who receive cryptocurrency token rewards.
So, in a sense, Cardano is a more progressive, anti-energy-usage blockchain and token system. The token, ADA, is named after mathematician Ada Lovelace.
Altcoins: Dogecoin (DOGE-USD)
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Price: $0.28
Market Capitalization: $35.7 billion
Dogecoin is an open-source blockchain network that uses a proof-of-work monetary system. It uses miners to validate transactions. Dogecoin uses a scrypt mining algorithm, with lower hash rates and less energy usage than Bitcoin.
Dogecoin’s unique feature is that it allows its supply to grow at a set absolute rate. This assures the market that the supply will have a steady rise. Therefore, its supply growth rate is inflationary, not deflationary like Bitcoin.
For example, right now there are 128 billion Dogecoins in circulation. This grows by no more than 5 billion per year. However, The Wall Street Journal reports that there is one owner of Dogecoin who owns as much as 28% of its total supply.
Dogecoin has been very popular on social media, as well as a favorite of Elon Musk. In fact, Galaxy Digital (OTCMKTS:BRPHF) CEO Mike Novogratz says that it’s dangerous to try to short Dogecoin. He says it is fueled by Robinhood traders and WallStreetBets, a powerful community backing Dogecoin. So far, the coin has performed extremely well, up almost 40 times year-to-date alone.
Litecoin (LTC-USD)
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Price: $256.85
Market Capitalization: $17.1 billion
Litecoin is up about 100% year-to-date, which in altcoin terms is not that exciting. However, Litecoin has been around long enough to call itself “the cryptocurrency for payments.” Its network allows instant, near-zero cost payments around the world. It was created in 2011 by a former Google and Coinbase engineer, Charlie Lee.
Litecoin also uses a scrypt-based proof-of-work validation system. However, its algorithms are harder to mine and the coin is less popular among miners. Nevertheless, the Litecoin community believes that its payments transfer system is its main draw. It is a proven medium of exchange complementary to Bitcoin.
In addition, because of its general acceptance in the crypto community, it often starts trading on new exchanges along with Bitcoin and Ethereum. For example, recently PayPal (NASDAQ:PYPL) decided to allow crypto payments within its Venmo network. Litecoin was included as one of the four cryptos tradeable in Venmo, including Bitcoin, Ethereum, and Bitcoin Cash.
Altcoins: Chainlink (LINK-USD)
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Price: $36.58
Market Capitalization: $15.3 billion
Chainlink has had a meteoric rise to become one of the largest cryptocurrencies used in the world. The LINK currency closed 2020 at $11.87 and is now up around 200% year-to-date.
Chainlink was founded in 2017 by Sergey Nazarov, who wrote its white paper, along with a Cornell professor. The initial coin offering in 2017 raised $32 million, but it got a big boost when Google began using Chainlink in 2019.
Forbes described Chainlink as “a company that provides on ramps and off ramps for information necessary to run self-executing code called smart contracts.”
For example, according to Forbes, Chainlink “offers a service called an oracle to integrate data.” An example is linking finance information from well-known sites into smart contracts. Sergey Nazarov is also known as the founder of the smart contracts concept, which essentially means he owns the smartcontracts.com domain name.
The chainlink token, LINK, is based on Ethereum. The blockchain’s main purpose is “to curb dishonest centralized data-feed providers by using a distributed network of nodes to verify data it receives from sources.”
Stellar Lumens (XLM-USD)
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Price: $0.52
Market Capitalization: $11.9 billion
Stellar Lumens is the token cryptocurrency for Stellar, a blockchain protocol for payments systems. It was started in 2014 by Jed McCaleb, the founder of Mt. Gox and co-founder of Ripple (CCC:XRP-USD). It now has a market cap of over $10 billion, giving it a rank in the top 15 cryptocurrencies in the world.
Stellar is trying to work with a number of central banks, including a working relationship with the central bank of Ukraine. A number of projects were announced with Deloitte and IBM (NYSE:IBM) in 2016 and 2017.
One difference between Bitcoin and Stellar is that XLM cannot be mined. There is no proof-of-work algorithm that has to be solved and in which XLM can be earned as rewards.
With a total 50 billion Lumens, 20 million have been sold into the market while the Stellar Development Foundation (SDF) holds the rest. That balance is directed under SDF’s mandate to spend or promote Stellar.
Altcoins: VeChain (VET)
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Price: $0.22
Market Capitalization: $13.8 billion
VeChain is a blockchain and cryptocurrency that is focused on improving corporate supply chains and logistics. The VET cryptocurrency ended 2020 at 1.91 U.S. cents. It is up over 9 times in the past four months since the end of 2020. However, this is one of the few large cryptocurrencies that is still not available in Coinbase.
However, VeChain is clearly gaining a reputation as a supply chain blockchain solution. A number of large enterprises are using it for inventory tracking purposes.
One large company that the VeChain Foundation has “strategically partnered” with is a Norwegian company called DNV. This is the world’s largest classification society. It provides tracking services for 13,175 vessels and mobile offshore units. Seeking Alpha says DNV has been an early adopter of blockchain logistics.
Existing VeChain partnerships and large businesses that use VeChain are tracked on a site called Vechaininsider.com. This lists 5 strategic partnerships, including DNV, PriceWaterhouseCoopers, and several Chinese companies.
The other major feature about VeChain is that it pays a dividend of sorts. An “offshoot coin” called THOR, or VeThor (CCC:VTHO-USD) token is paid to every holder of VET tokens. The rate is about 4.32 VTHO for every 10,000 VET tokens. At today’s USD rates that is about 1.2% or so annually. This is fairly unique among cryptocurrencies today.
Another unique feature is its proof-of-authority protocol system, which is an offshoot of the proof-of-stake system. As a result of its dual token supply structure, the total supply of tokens is slightly inflationary as a result. However, given the blockchain’s popularity with large corporations, it looks like VeChain is here to stay. It could end up being worth a good deal more than today.
Each of these altcoins has a unique purpose or focus for the blockchain technology associated with the cryptocurrency. For Ethereum, it’s tamper-proof smart contracts. For Cardano, it’s the proof-of-stake system, an alternative to the Bitcoin proof-of-work protocols. Litecoin specializes in fast blockchain money transfers. You get the point.
The main reason, though, to own any of these altcoins, is the prospect of higher price appreciation than Bitcoin. It will also involve higher risk. For example, the VeChain Foundation’s wallet had a hacker attack in 2019 that was successful. That did not affect other owners of VET tokens, but it shows the risks involved.
But as the saying goes, high return, high risk. These cryptocurrencies are for speculators only.
On the date of publication, Mark R. Hake held a long position in Bitcoin (BTC) and Ethereum (ETH).
Mark Hake writes about personal finance on mrhake.medium.com and runs the Total Yield Value Guide which you can review here.