As cryptocurrencies fall from recent highs, investors are undoubtedly feeling the specter of 2018. At the time, cryptocurrencies fell 81%, wiping out nearly $ 600 billion in market capitalization and sending Bitcoin (CCC:BTC-USD) and other altcoins on a multi-year payback journey that few people want to relive.
This time however, looks slightly different. Bitcoin has much wider adoption, especially among payment processors like Pay Pal (NASDAQ:PYPL) and Square (NYSE:SQ). And high-profile thefts have also become rarer as security has improved. This makes Bitcoin much more likely to remain relevant, even as prices turn.
But Bitcoin’s stability comes at the expense of a more limited rise. The cryptocurrency’s $ 800 billion market capitalization already makes it the fifth currency in the world. Doubling it would make it as big as the US dollar, while a 10-fold growth would make it more valuable than all the physical gold ever mined.
This means that investors looking for the next 100x cryptocurrency should look to altcoins, smaller cryptocurrencies that still have a chance to become big. Because when you buy a currency worth $ 10 billion, you have a much better chance of making huge gains.
What Makes a Good Altcoin?
Bitcoin itself is a technological dinosaur compared to other cryptocurrencies. Blockchain transactions, for example, costs $ 15 to run and takes ten minutes to confirm.
But as the first decentralized cryptocurrency, Bitcoin has maintained its lead thanks to a strong community and widespread adoption. This means that successful altcoins will require a lot more than minor technology upgrades. Bitcoin Cash, for example, remains 80% below all-time highs despite a higher transaction per second limit than its predecessor.
Instead, successful altcoins will look a lot more like Ethereum (CCC:ETH-USD), a long-time favorite altcoin:
- Technological leap forward. Successful altcoins require significant improvements in Bitcoin to stand out, whether in terms of security, speed, efficiency, or different applications.
- Differentiated objective. Altcoins must also stand out from the shadow of Bitcoin’s “digital gold” – a store of value – and build a life of its own.
Time for Altcoins?
Altcoins are not necessarily for everyone. Even the most promising will stumble if programming flaws appear – and large Initial Coin Offerings (ICOs) are often notoriously overpriced, leading to long term underperformance.
While the shadow of Bitcoin still hangs over the crypto landscape, here are five promising altcoins every investor should know:
- Cardano (CCC:ADA-USD)
- Spotted (CCC:DOT-USD)
- Stellar (CCC:XLM-USD)
- Celsius (CCC:CEL-USD)
- Neo (CCC:NEO-USD)
Growing altcoins could pose a threat to Bitcoin’s dominance. Legacy cryptocurrency still relies on third parties for batch orders and acts as a middleman to overcome the cost and lack of speed of Bitcoin. The next generation of parts promises to perform these tasks independently. We will take a look.
Alternative Cryptocurrencies for 2021: Cardano (ADA)
Cardano remains one of the most advanced general purpose altcoins on the market. This third generation coin uses a proof of stake system, compared to the standard proof of work. This makes the system much more efficient than Bitcoin and faster too.
The Cardano Foundation also has a star team that runs the show. The currency was launched in 2015 by Charles Hoskinson, co-founder of Ethereum, and maintains an active development community. Today the team is led by digital payments veteran Frederik Gregaard, an old man who once led PwC’s Digital Financial Services division.
ADA, the currency managed on the Cardano network, has already grown 4,400% since its initial coin offering (ICO) in 2017. As the currency gains visibility, investors are now seeing $ 10 price targets are starting to appear – a significant advantage for a part available for less than $ 1 today.
Polkadot was founded by another alumnus of the Ethereum project, CTO Gavin Wood. And this altcoin takes a totally different approach to cryptocurrencies.
Rather than hosting a single, constantly growing blockchain, Polkadot uses parachains – multiple blockchains that work in parallel. This solves Bitcoin’s problem of managing a single ledger – one that is already over 320 GB in size.
Altcoin has grown dramatically since its launch in August 2020 thanks to efforts such as Polkastarter, a decentralized exchange built on Polkadot. Projects have even started to gain attention from the founders of the Gemini crypto exchange, the Winklevoss twins, as well as many top sports celebrities.
This makes DOT, the currency of Polkadot, a currency to watch closely for 2021. The currency has already increased tenfold. But with a market cap of $ 30 billion, there is still room for this promising altcoin to work.
Ripple (CCC:XRP-USD) co-founder Jed McCaleb launched Stellar in 2014 as an altcoin alternative to XRP. Cryptocurrency facilitates cross-border transactions using a protocol developed by Stanford professor David Mazières.
The system itself uses a trusted network, where each person running the software identifies other trusted partners to confirm transactions. This eliminates the need for the expensive crypto mining that Bitcoin relies on to validate transactions.
The fundamental reason for Stellar’s growth, however, has more to do with the downfall of rival XRP. In December, the The SEC indicted Ripple and two executives with the completion of a $ 1.3 billion unregistered securities offering. About half of all XRP is still owned by founding company Ripple Networks, and its ICOs have raised regulatory red flags.
Meanwhile, Stellar stepped in to fill the role of XRP. Its system of using trusted partners makes it an ideal substitute for quickly transferring money between banks. And with a coin price of less than $ 0.40, Stellar is a currency that could still grow many times over.
Celsius is a smaller cryptocurrency focused on lending and borrowing. Interest rates for potential borrowers start at just 1% APR, while depositors earn interest on cryptocurrency that would otherwise remain in a stagnant account. Interest rates can be as high as 15.85% for stablecoins like Tether.
Celsius Network has also wisely registered as U.S. Securities and Exchange Commission exempt issuer (SEC) in 2018, making it much less likely to face regulatory hurdles.
The system looks particularly promising thanks to its ease of use. Savers can transfer their entire cryptocurrency account to Celsius Network – Bitcoin, Ethereum and all – without converting to any proprietary coins. And borrowers can take out loans by depositing cryptocurrency, avoiding having to cash out.
There are risks of course. A Coindesk survey found cases of unsecured network loans, where a borrower default would leave Celsius Networks or P2P lenders with irreversible losses. And there is always a temptation to take riskier loans that earn higher interest.
A sudden drop in collateral values (i.e. cryptocurrencies) can also have a ripple effect on the value of Celsius. At the time of writing, Celsius requires 2.7 ETH deposit to borrow $ 1,000. At today’s crypto prices, a borrower would have to voluntarily repay the loan to collect their collateral. If ETH prices drop, however, the same person might instead decide to walk away with the money, leaving Celsius investors hoping the network has hedged its bets.
Nevertheless, Celsius is very promising. CEL is very different from Bitcoin and investment risks will decrease as cryptocurrency prices stabilize.
Investors may have written off Neo a long time ago. The China-based cryptocurrency (formerly known as Antshares) went into a spin in 2018 when the Chinese central government cracked down on cryptocurrency exchanges. The currency remains nearly 80% down from its all-time highs.
Yet change is on the horizon. In April last year, Chinese authorities initiated a limited deployment of e-yuan, a government-backed cryptocurrency. People expect the CCP to expand the program during the Beijing 2022 Winter Olympics.
Much of this change comes from the recognition that cryptocurrencies are here to stay. And rather than allowing outside players like Bitcoin and Ethereum to push finance out of the CCP’s view, they began to embrace local cryptocurrencies as alternatives.
Smaller cryptocurrencies based in China have already started to emerge. VeChain, another promising cryptocurrency, helps Chinese companies with supply chain management.
While it’s impossible to know if the CCP will also name Neo a cryptocurrency champion, there is a phenomenal advantage to be had if they do.
At the time of publication, Tom Yeung had (directly or indirectly) no position in any of the stocks mentioned in this article.
Tom Yeung, CFA, is a Registered Investment Advisor whose mission is to simplify the world of investing.