Investors are looking to altcoins for crypto diversification.
Cryptocurrency has taken a beating during this bear market. Bitcoin (BTC), the first and most popular crypto based on blockchain technology, is down more than 57% for the year as of June 21. “The fundamentals of crypto are stronger than they’ve ever been before,” says Matt Hougan, chief investment officer at Bitwise Asset Management. In addition, Alexander Lutskevych, founder and CEO of crypto exchange CEX.IO, says he “firmly believes crypto is here to stay.” Obviously, Bitcoin enjoys some first-mover advantage in terms of price and circulation. But Lutskevych says that the real innovation in blockchain and crypto is taking place through projects with altcoins, or cryptocurrencies other than Bitcoin. “The first mover is not always the winner,” Hougan adds. Among the most compelling reasons for investors to look at different altcoins is diversification, to provide ballast to a crypto portfolio. Here are seven altcoins worthy of any investor’s attention.
Bitcoin was the first mover in the crypto space. However, Ether (ETH), the native cryptocurrency of the Ethereum blockchain, is a weighty number two. ETH has about a $129 billion market cap as of June 21. And even in the midst of the current crypto pullback, its price is around $1,100. This is a far cry from BTC, at roughly $20,100. However, Ether has a use value beyond the simple storage of wealth. BTC users compare Bitcoin to digital gold, but Ether’s value is based on the worth of its underlying blockchain. The system allows users to execute a host of valuable functions, not the least of which is smart contracts. These kinds of contracts automate execution, saving participants time and money, and streamlining workflow. In fact, Hougan says, the Ethereum blockchain is actually “a new internet for finance, functioning like Apple’s app store, but for Web3.”
Some investors aren’t as interested in Ether as an altcoin as they are in the development happening on the Ethereum network, says Vin Narayanan, vice president of strategy at KingsCrowd, which analyzes startups and private companies. Ethereum’s blockchain platform allows developers to build multiple decentralized applications on it. And after the collapse of Terra, it looks as if it could wind up as the industry standard. To that extent, one crypto investment to keep an eye on is Polygon, which helps developers create different scalable apps and programs on the Ethereum network. In this way, Polygon takes advantage of Ethereum’s stability while simultaneously offering investors an alternative investment tool to the Ether coin. Moreover, unlike others building on the network, Polygon is expected to survive the Ethereum 2.0 upgrade scheduled to happen by 2023, which means the MATIC token could still see tremendous growth. It has a $3.3 billion market cap as of June 21. There are 8 billion coins in circulation, trading at 41 cents.
Unlike Bitcoin, Monero disguises the IP addresses used for transactions on its blockchain. This makes the transaction log much more opaque. For this reason, coins like XMR are referred to as privacy coins. However, a major drawback to that privacy is that XMR and similar coins are much easier to use on the dark web and for illicit transactions. This has led Japan and South Korea to ban Monero in their countries. Some exchanges in the U.S. and Australia have chosen to voluntarily delist it as well. This doesn’t bode well for Monero’s future, obviously, but as Narayanan says, “If you’re interested in privacy coins and you want to invest in them, Monero is a good place to go.” XMR traded at $118.80 as of June 21. There are more than 18 million coins in circulation, and it has a $2.1 billion market cap.
More than just a coin, Uniswap functions as a cryptocurrency exchange, much like Coinbase Global Inc. (COIN) or Binance. However, unlike those two exchanges, Uniswap is a decentralized application. This means there’s no single entity that controls the exchange. Instead, Uniswap, built on the Ethereum network, uses an automated liquidity pool to allow for peer-to-peer transactions that don’t require order books or any other centralized intermediary. By pooling users’ money together, Uniswap creates funds that execute trades on the platform. Hougan calls Uniswap “a huge core piece of the DeFi infrastructure.” Decentralized finance, or DeFi, uses blockchain technology to eliminate the use of third parties for financial transactions. UNI is the native governance token for the Uniswap exchange and is used to generate voting rights on Uniswap projects. UNI currently has a $3.7 billion market cap, with nearly 720 million coins in circulation. It traded for $4.75 on June 21.
In addition to Ethereum-scaling and privacy coins, Narayanan says “exposure to a DeFi coin” is an important part of building a diversified crypto portfolio. His favorite DeFi coin is AAVE. Like Uniswap, Aave is a DeFi protocol that uses automated liquidity pools for lending. Unlike Uniswap, however, Aave works on blockchains other than Ethereum. This means Aave isn’t always subject to the same high gas fees as Ethereum-only coins like UNI. Users pay a gas fee to conduct business on a certain network, and Ethereum’s are the highest. At $897 million, AAVE’s market cap is the smallest of the altcoins included in this list. There are 13.9 million of these coins in circulation, and they traded for $65.53 on June 21.
Chainlink is a blockchain “oracle.” An oracle is any program or device that connects a blockchain with additional data that’s off the chain itself. Chainlink’s main purpose is to provide off-chain data feeds for smart contracts. LINK tokens are then used to reward Chainlink operators for retrieving and formatting that data. However, when Chainlink launched in 2017, LINK tokens were not traded on any exchanges. They were only available to network operators, and those operators agreed not to trade or sell their tokens. By January 2021, though, 40% of all LINK tokens were in public circulation. They’re now traded on virtually every major exchange. Hougan finds Chainlink a very attractive opportunity. “A lot of people think the next major bull market in crypto will be crypto exiting its own world and entering the mainstream,” he says, and he believes Chainlink’s oracle technology could be an important part of that transition.
One topic that’s difficult to avoid when discussing cryptocurrencies is the metaverse. The metaverse is a virtual world that many leading companies, including Meta Platforms Inc. (META), Apple Inc. (AAPL) and Microsoft Corp. (MSFT), are attempting to create for humans to inhabit through virtual reality, augmented reality and other technologies. One question that’s on the tip of everybody’s tongue in this respect, though, is: How are people going to pay for things in the metaverse? Enter Decentraland, which is itself a virtual world where users can own “land” and build their own virtual worlds on it. Everything in Decentraland is made available through the use of the project’s own MANA tokens. MANA traded for 84 cents on June 21, with more than 1.8 billion tokens in circulation and a market cap over $1.5 billion. Obviously, this is a highly speculative project, the value of which depends on the adoption of many different high-tech elements.
In a crypto comeback, these altcoins could shine:
- Ether (ETH)
- Polygon (MATIC)
- Monero (XMR)
- Uniswap (UNI)
- Aave (AAVE)
- Chainlink (LINK)
- Decentraland (MANA)
Updated on June 22, 2022: This story was published at an earlier date and has been updated with new information.