By Mark R. Hake, CFA May 10, 2021
Bitcoin (CCC:BTC-USD) has moved up so far, so fast that anyone starting to invest in cryptocurrencies is more or less forced to look at alternative plays. As of Friday May 7, BTC-USD was trading at $57,732, up 99.3% from $28,972 on Dec. 31, 2020. Many investors are considering other cryptocurrencies that might offer better upside and a cheaper absolute price.
This article discusses 7 of the top 20 largest cryptocurrencies to consider investing in beyond Bitcoin and Ethereum (CCC:ETH-USD), the second-largest cryptocurrency. ETH-USD was at $3,535 as of Friday, May 7, and is up 384% from $730.37 as of Dec. 31, 2021.
We’ll look for altcoins that have lower absolute prices than these top two cryptocurrencies. These alternative picks might provide the same meteoric upside both Bitcoin and Ethereum have had over their lifespan.
Each of these cryptocurrencies trades below $2. That means for $2,000 you can buy up to 1,000 coins or tokens. So if they ever trade above $100, like Litecoin (CCC:LTC-USD), currently at $351, or Filecoin (CCC:FIL-USD), at $150.67, investors can make a lot of money.
- Dogecoin (CCC:DOGE-USD)
- Ripple (CCC:XRP-USD)
- Cardano (CCC:ADA-USD)
- VeChain (CCC:VET-USD)
- Stellar Lumens (CCC:XLM-USD)
- Tron (CCC:TRX-USD)
- BitTorrent (CCC:BTT-USD)
Let’s dive in and look at these cryptocurrencies
Market Capitalization: $59.3 billion
Dogecoin was originally created as a joke to mimic the rise of Bitcoin, but it has since taken on a life of its own. I wrote about its phenomenal rise recently in InvestorPlace, and about those saying the joke is over.
Moreover, Dogecoin has a slightly inflationary token supply structure. This is because the token issues just 5 billion new Dogecoin each year. With a present total of 128 billion Dogecoin, that means the average annual increase is 3.90%. But each year this percentage increase declines as the base denominator rises.
This token supply structure may actually make Dogecoin a useful cryptocurrency for payments in the real economy, as I wrote in my Feb. 8 article. The reason is that economies need a slight bit of inflation, which helps account for both the velocity of spending as well as price increases.
It also discourages people from hoarding the currency, even though it rises in value. Since most large economies grow at an average clip of 3% or better over the long run, the greater-than-3% growth in cryptocurrency supply helps accommodate this growth.
Therefore, look for Dogecoin to take on more than just a cult following over the next year or so. I suspect it has a good chance of crossing $100 billion in market value, making it the third-largest cryptocurrency after Ethereum.
For example, if it were to hit $1 per Dogecoin, it would have risen nearly 120% from current prices, giving it a market cap just under $130 billion. That’s still a far cry from Ethereum’s $409 billion market valuation. So there seems to be an upward limit to how high this coin could fly.
Both Robinhood and Webull offer the ability to buy Dogecoin. I suspect that this has also played a huge part in Dogecoin’s rise. However, you still cannot do so on Coinbase (NASDAQ:COIN).
Market Cap: $50.3 Billion
Ripple, created in 2012, is tainted by lawsuits from both the SEC and private investors. In January, Coinbase delisted Ripple from its exchange. However, some other exchanges still allow trading in Ripple.
If you are willing to overlook the SEC issues (numerous and described in my recent article), Ripple might eventually succeed. Ripple wants to be a real-time payment settlement system with no chargebacks. The problem is there are a number of other cryptocurrencies in this space as well.
You can tell that I am somewhat lukewarm about Ripple’s prospects. Nevertheless, the currency has been rising, despite its troubles. For example, XRP-USD closed out 2020 at $0.2324. As of May 10, it was at $1.43. This means it has risen 515% so far this year.
I suspect that there is a good chance, given its speculative fever, Ripple token could cross the $100 billion mark. That gives it another 98.8% potential gain.
Market Cap: $53.6 Billion
Cardano is a platform with a different blockchain validation system than Bitcoin or Ethereum. Those blockchains use mining and a proof-of-work reward system for miners. Cardano’s system, called Ouroboros, is based on a proof-of-stake validation.
Anyone can stake his Cardano to validate a blockchain set and get rewarded for this. This uses significantly less electricity than cryptomining. Even Ethereum is going to transition to this system within the next year. Cardano is already there and is currently the largest proof-of-stake validation blockchain and crypto in operation.
ADA coins can also be used for peer-to-peer settlement in payment transactions. The platform also enables smart contracts and applications that can run on its platform. However, the company that founded Cardano, IOHK, sets the rules for the platform and has funded its growth. To date, there have not been many large companies that use its platform.
Don’t expect Cardano to dramatically rise from here, given its huge market cap already. However, as adoption picks up over time, the token could rise in value.
Market Cap: $13.3 Billion
I have written bout VeChain and its supply chain and logistics focused blockchain platform. In fact, a number of large enterprises are now using VeChain, to track their inventory.
One such company based in Norway, DNV, tracks commercial cargo vessels and their cargo items. According to Seeking Alpha, it was an early adopter of blockchain technology to track this inventory.
VeChain is also unique in that it pays a dividend of sorts called VeThor (CCC:VTHO-USD) to VET token holders. In my previous article, I estimated that the dividend rate is a little over 1.3%.
This makes VET-USD a truly unique blockchain and cryptocurrency. The VeThor cryptocurrency trades separately and is also worth your consideration.
Stellar Lumens (XLM-USD)
Market Cap: $15.46 Billion
Stellar Lumens is a blockchain protocol for payments systems. It wants to ease money transfers around the world. In 2017 Stellar Lumens started working with the government of Ukraine. They are in discussions to develop a national digital currency. This will be a signature event for Stellar Lumens if this gets off the ground.
In its essence, Stellar is an open-source protocol for exchanging money or tokens, according to Wikipedia. It was founded by Jed McCaleb, who founded Mt. Gox and was a co-founder of Ripple.
Ripple’s success will depend on how well its payment system platform will be adopted around the world. So far, it has limited success. It may take longer than most people may want to wait for the Stellar Lumens platform to be adopted by national governments and enterprises.
Market Cap: $9.1 Billion
Tron is an operating system based on a blockchain with an independent peer-to-peer network. The Tron Foundation originally raised $70 million in an initial coin offering in China. Since then the TRX-USD crypto, called Tronix, has risen to nearly $10 billion in market value.
Wikipedia reports that the Tron crypto had a controversial background, including charges of plagiarism and certain other charges. The Tron Foundation resisted these accusations and tweaked its modus operandi by acquiring BitTorrent, the biggest peer-to-peer file-sharing network.
Justin Sun founded Tron and is now also the CEO of BitTorrent. According to Coindesk, he sees Tron as a viable competitor to Ethereum. That could be one major reason why Tron has done well this year.
Tron ended 2020 at 2.69 cents. At 12.8 cents today it is up 376% year-to-date. Look for TRX-USD to continue to do well as it gains acceptance.
Market Cap: $4.2 Billion
BitTorrent is a peer-to-peer file-share platform founded by Bram Cohen and later sold to Tron (see above). The platform seeks to enhance users’ ability to distribute and data and large electronic files using a decentralized protocol.
Initially, the protocol was used to allow illegal downloads of pirated movies and other media on a decentralized basis. Later, after receiving private equity funding, BitTorrent cut deals with the largest seven movie studios to rid itself of illegal copyright issues.
Recently BitTorrent has received licenses from a number of these film studios to distribute their content. This makes its cryptocurrency quite valuable.
Although this currency is not in the top 20, I wanted to include it since I think it has substantial ability to appreciate over the next year. This is because its platform solves real-world issues relating to large file sharing.
Since selling BitTorrent to Tron, founder Bram Cohen has gone on to found a new cryptocurrency Chia (CCC:XCH-USD). Its goal is to make it easier for people to use unused space on their computers to mine cryptocurrencies and make money.
Recently BitTorrent was added to a new exchange, Poliniex, allowing it to be staked by validators. This exchange is also owned by investors that include Justin Sun, who bought BitTorrent in 2018. Some speculate this could account for its recent uptick. Look for BitTorrent to continue to do well as its adoption rate grows.
These 7 cryptos (really eight when you include VTHO-USD) all have prices below $20 but are among the top 20 largest cryptocurrencies by market capitalization. This implies a significant level of acceptance; these are not fledgling cryptocurrencies just getting off the ground.
The theory here is that one can buy a large number of shares, given the low prices, and given that the market caps are not yet mature. A mix of investments in all or some of these digital cryptocurrencies will certainly do well over time.
On the date of publication, Mark R. Hake held a long position in Bitcoin, Ethereum, BitTorrent and Dogecoin. He did not hold a long or short position in any of the other securities mentioned in this article.
Mark Hake writes about personal finance on mrhake.medium.com and runs the Total Yield Value Guide