While some older forms of cryptocurrency have been in existence since the 1980’s, most people learned about cryptocurrency through the lens of the monumental rise of Bitcoin. Founded in 2008 under mysterious circumstances, Bitcoin has taken us on a roller coaster ride of epic proportions and created many “new rich” in the process.
Just imagine if you had purchased 10 Bitcoin in October of 2013 when a single coin went for around $164. As of this writing, one Bitcoin is worth $33,863, which means your original investment would now be worth $338,630. Of course, you would have had to fight the urge not to sell your investment when Bitcoin hit $20,000 for the first time in 2018, and then you would have to fight the urge once again when it dropped below $4,000 in the winter of 2019.
While nobody knows where Bitcoin goes from here, some experts say Bitcoin could easily surpass $300,000 or more in value in the coming years. On other other hand, plenty of experts say it’s doomed to fail. In fact, famous investor Kevin O’Leary recently said in a YouTube video that he wouldn’t invest in Bitcoin because it is a “giant nothing-burger.”
What About Other Cryptocurrencies?
Whether you should or shouldn’t invest in Bitcoin is a decision you’ll have to make on your own. However, many cryptocurrency insiders say it’s important to learn about other popular types of cryptocurrency, too.
According to Steve Azoury, financial advisor and owner of Azoury Financial in Troy, Michigan, there are several advantages in doing so. For starters, he says that new and upcoming cryptocurrency services will all have to compete for your business. Ultimately, this will benefit consumers.
“Competition helps the consumer and forces companies to perform at a lower cost,” says Azoury.
Beyond forcing cryptocurrency providers into offering better service and terms, financial advisor Zechariah Schaefer of Ascent Personal Finance says you can use alternate cryptocurrencies to diversify your portfolio even more.
The implications of blockchain technology, the technology that powers Bitcoin, reach far greater than Bitcoin and other digital currencies, he says. Not only that, but cryptocurrency is revolutionary, and it is also the most basic implementation of Blockchain.
“By investing in other cryptos, an investor is able to expose themselves to projects seeking to implement elevated use cases of blockchain and disrupt those industries that are so ripe for innovation,” says Schaefer.
Anthony Denier, CEO of trading platform Webull, says another big advantage to buying other cryptocurrencies is that they are “much more reasonably priced.”
Denier uses the example of Ethereum, which is currently trading at around $1,400. Since it is lesser known for now, this creates the potential for greater upside, he says.
Transaction costs for alternate cryptocurrencies may also be lower as well, which is not insignificant if you are an active trader. Denier also says that, since other digital currencies came out after Bitcoin, they may incorporate additional features that could make industries prefer them to Bitcoin.
Alternate Cryptocurrencies To Consider
María Paula Fernandez, Advisor to the Board of Directors at the Golem Network, says Bitcoin and Ethereum are always good options for investing if you’re looking to diversify your portfolio with cryptocurrency. However, there are many other platforms to consider.
Fernandez points to Polkadot and its DOT token, a new internet of blockchains, or the industry-favorite LINK token from Chainlink as cryptocurrencies to watch out for.
Edmund McCormack, founder of DChained, also says excitement is building for currencies in the DeFi ecosystem, from Synthetix to Chainlink.
Meanwhile, McCormack says investors searching for larger returns will need to “identify projects that fulfill real-world use cases and offer a solution to existing problems.”
In that area, OCEAN is garnering interest with investors, who are clamoring for it to become available in the US on Coinbase and Gemini.
What To Watch Out For
Before you rush out to dump a percentage of your portfolio into an up-and-coming cryptocurrency, you should know the risks.
Denier says that even though Bitcoin is a “very risky investment,” smaller coins are much riskier since they have a shorter track record.
Investors should research the cautionary tale of Ripple (XRP), which was the third-largest crypto as of last month, he says. In December, the U.S. Securities and Exchange Commission (SEC) declared that XRP is an unregistered securities offering, and this led exchanges to suspend trading or delist XRP altogether.
Denier points out that this has caused a liquidity crisis for investors trying to sell, forcing the coin’s price to sink below a dollar.
Schaefer also points out that many of these smaller cryptocurrency projects seek to solve problems that either do not exist or are impractical to solve with blockchain.
A significant number of these projects have sizable funding, excellent marketing, extremely smart teams, and well-known advisory boards, he says. However, due to overexuberance about cryptocurrencies and blockchain, they are forging ahead with plans that don’t make any practical sense.
Shidan Gouran, founder of Jazinga, recently agreed with that premise, stating that there are “a lot of baseless projects that serve no purpose other than capitalizing on short-term hype.”
Gouran says there are currently more than 8,000 cryptocurrencies in existence, and most are “virtually worthless.”
For that reason, you should never invest in a cryptocurrency just because it sounds good.
“You need to really do your research to understand what a cryptocurrency actually does, and not get distracted by speculative ideas about its value,” says Gouran.
The bottom line: If a newer cryptocurrency seems like it’s mostly smoke and mirrors, then it probably is.