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An indication of maturity in the market is also seen in the fact that long term interest is gradually moving away from Bitcoin and widening into other cryptocurrencies - collectively referred to as altcoins. While Bitcoin is still the largest cryptocurrency with a dominance of 41% in terms of market cap, the share of altcoins has been catching up.
In February this year, I wrote about the ‘mainstreaming’ of cryptocurrencies in my article titled ‘It is hard to ignore crypto’. This article primarily highlighted the increased institutional interest in Bitcoin, the original and the largest cryptocurrency by market cap (c.50% of total cryptocurrency market cap as per coinmarketcap.com at the time). In the time since the article was published, not only has Bitcoin garnered further institutional interest but has also touched an all-time high of $64k+.
The last few weeks have seen Bitcoin retreating to c.$50k while Ether (Etherium network’s native currency – discussed in more detail below) touched an all-time high of $4,362 on the back of increased adoption and developer activity.
Events like Elon Musk’s retraction on accepting Bitcoin as a mode of payment for Tesla, Turkey’s ban on cryptocurrencies, power outage in China and the Biden administration’s proposal to increase taxes on long-term capital gains and qualified dividends significantly for higher earners have buffeted the market with negative sentiment in the past few weeks. However, despite these temporary hiccups, I believe that the adoption of cryptocurrency is just in its initial stages.
Former President of the New York Stock Exchange, Thomas Farley, said in a recent interview that ‘it's the best-kept secret in the world and maybe the financial markets’. An indication of maturity in the market is also seen in the fact that long term interest is gradually moving away from Bitcoin and widening into other cryptocurrencies - collectively referred to as altcoins. In this article, I dive a bit deeper into the trends related to some of the popular altcoins in the market today.
An indication of maturity in the market is also seen in the fact that long term interest is gradually moving away from Bitcoin and widening into other cryptocurrencies - collectively referred to as altcoins.
The first altcoin is Ether. It is the world’s second-largest cryptocurrency with a market cap of $440bn and a daily volume of $67bn as of 14th May. According to ethereum.org, “Ethereum is the community-run technology powering the cryptocurrency, ether (ETH) and thousands of decentralized applications.”.
Ethereum was founded by Vitalik Buterin in 2014 as a decentralised network upon which developers can build decentralised apps of ‘Dapps’. Decentralised applications allow people to connect directly with each other without the need to go through a third party. E.g., in a decentralised social network, key components like servers, user data etc, will be controlled by the users on the network and not a central entity like Facebook, Twitter etc.
The internet as we know today uses the Transmission Control Protocol/Internet Protocol (TCP/IP) suite as the platform for communications between computers across the internet. A Reddit thread captures the Ethereum network perfectly in this context “Ethereum is like TCP/IP in that sense - TCP/IP being a standard protocol for computer networks and the interconnectivity between them. Ethereum can be described as a protocol for value networks (tokens) and cross-token interaction (using contracts).”
Ethereum’s language, Solidity, is used by developers to write smart contracts or the code that runs ‘Dapps’ on the network. The computers which maintain the Ethereum blockchain are incentivised with Ether while the developers who write these contracts have to pay for the privilege to deploy the code on the network in Ether. When Ether was launched in 2014, its price was c.$0.40. As of 14th May 2021, the price of 1 Ether was trading at c.$3,800.
Another Altcoin that usually features in the top 5 largest cryptocurrencies by market cap is XRP, the token for XRP Ledger which was created in 2012 specifically for payments. It is also worth highlighting Ripple, which is a technology company that builds ‘high-performance, global payments business through its platform, RippleNet’ using XRP. As per Ripple’s website, its vision “is to enable the world to move value like information moves today—the Internet of Value...RippleNet, includes over 300 financial institutions across 40 countries and six continents”.
Just like bitcoin, XRP has a finite supply of 100 billion XRP. When XRP first traded on an exchange in 2013, its price was $0.01. Today, XRP trades at around $1.3 with an all-time high of c.$3 achieved in 2018. Due to a close relationship between Ripple and XRP, the SEC filed a lawsuit against Ripple founders alleging that ‘Ripple held a $1.3 billion unregistered securities offering’ and that XRP is being used by the company as security and not a currency and thus falls under the purview of the SEC. The lawsuit is still ongoing.
Other Altcoins that feature in the top 10 include Binance Coin, Tether, Cardano, Dogecoin, Polkadot, Uniswap and Litecoin. These projects have a wide range of use cases. E.g. Polkadot, founded by Dr Gavin Wood, who was also the co-founder of the Ethereum project, ‘enables cross-blockchain transfers of any type of data or asset, not just tokens’.
Cardano was also started by an ex-co-founder of the Ethereum Project, Charles Hoskinson. It is a proof-of-stake blockchain platform (capability to mine coins is proportional to the amount of coins held) where every feature added to the network is based on ‘peer-reviewed research and developed through evidence-based methods’. The native cryptocurrency of the network is called ‘ada’. Projects built on the Cardano network can bring smart contract functionality to various sectors including Education, Finance, Retail and Agriculture among others.
The projects and coins highlighted above represent the top 10 cryptocurrencies in terms of market cap and account for $1.8trn out of the c.$2.2trn market cap i.e. c.80% of the total investment into cryptocurrencies. The focus is gradually shifting from Bitcoin to some of these projects as they gain traction among developers, investors and users.
Furthermore, it is worth highlighting that there is a total of 9,801 cryptos live as of 14th May 2021 according to coinmarketcap.com. Many upcoming projects in this long tail are worth looking into as well. A separate piece just focussing on the smaller, upcoming projects and coins might be a good idea!