It’s not just Bitcoin.
A number of cryptocurrencies are posting even gaudier numbers than the progenitor of digital money. Ethereum, a longtime favorite of tech geeks, has quintupled in value since its 12-month low on March 16, besting Bitcoin’s 295% increase in the same period. And XRP, a lightning rod for crypto-critics, has doubled in value since Nov. 17.
In the last week, new customers were buying XRP at three times the rate of Bitcoin on eToro, an online trading platform popular with millennials in Europe and Asia. Just comparing prices may be all it takes for investors to consider even more options such as Litecoin, Tron or Cosmos, all of which can be purchased for a fraction of Bitcoin’s record-high of nearly $20,000.
Yet crypto veterans say making these bets based on little more than market momentum is unwise. The world of blockchains, crypto mining and hash rates is so esoteric that even many professional money managers are still working out what makes it tick. Moreover, when Bitcoin boomed three years ago, scores of copycats came out of the woodwork, many of which amounted to little more than a white paper and a cute name.
While many of these cryptocurrencies soared right alongside Bitcoin in 2017, so, too, did they nosedive when Bitcoin collapsed in 2018 and became mired in a period known as crypto winter. Now they appear to be following the same pattern once again.
That’s why it’s imperative for investors to dig into the design and purpose of such “alt-coins,” as they are called, before they take the plunge, says George McDonaugh, the chief executive officer of KR1 Plc, a publicly traded digital asset investment firm based in the Isle of Man. You can start by tuning out the crypto-hucksters who populate YouTube and instead focusing on leading technologists on Twitter and industry websites (Jesse Powell and Emin Gun Sirer are two of McDonaugh’s favorite voices in the space).
“The crypto market is divided between companies on the path of innovation and those that just become pools of capital,” McDonaugh said. “If you’re trying to play the alt market and understand how you can turn 5 cents into $5 then you have to unlock a new area on the map. That takes research.”
Here is a guide to the most valuable alternatives to Bitcoin in the crypto universe:
Ethereum
With a market capitalization of $70 billion, Ethereum is only a fifth the size of Bitcoin. Yet it’s considered the most revolutionary variation of the technology that allows users to safely send assets around the world and record the transactions on an unchangeable digital ledger called the blockchain.
Unlike Bitcoin, which is designed to be a new form of universal money, Ethereum lets people create computer applications inside its system. And Ether, the digital token in the setup, isn’t supposed to be a new currency used to buy things. It’s just a piece of software that makes the whole system work. Users can set up so-called “smart contracts” on Ethereum that automatically issue payments and share data at pre-set times as certain terms are met.
Still, Ether is traded like a security. And lately investors have been getting excited about its future. In August, JPMorgan Chase & Co. invested in a company called ConsenSys that backs startups building applications that would run on Ethereum. Amazon.com Inc.’s cloud computing division is developing a service that will tap Ethereum to let customers execute financial transactions without the need for middlemen.
This month, Ethereum plans to start a major upgrade that is designed to improve its scalability and security.