The Case for Crypto Altcoins

2020-11-30 | Sam Shames

Everyone has seen the recent run in Bitcoin.

Bitcoin price has more than quadrupled off the lows and it seems that cryptocurrencies are now on everyone’s radar.

Equally as important, we have seen institutions drive adoption like never before, from Square and PayPal allowing users to buy on the platform, to greater institutional investments in Coinbase Pro and LedgerX exchanges.

Bitcoin has similar properties to gold… it is a store of value, requires “work” to mine, and offers limited supply and thus scarcity.

Many of us at Simpler believe this is just the start for Bitcoin and the crypto market overall.

There is another part to the crypto market, however. Anything that is not Bitcoin is considered an “altcoin.” It is in these alts that the real outperformance may shine through if crypto adoption continues.

Let’s use one example, Ethereum. Ethereum shares similar properties to Bitcoin in that it can be used to transact, and can be thought of as a store of value – but one major difference arises. Ethereum, unlike Bitcoin, is a platform to build higher order technologies on top of. Yes, there will be improvements to the tech underlying Bitcoin, but Ethereum is a platform unto itself.

For example, Ethereum can be thought of as Windows 95. It is the base “operating system” for a plethora of altcoins that are built on top of the Ethereum protocols. In this instance Ethereum is Windows 95 and ERC-20 tokens (Ethereum based projects/coins) are like MS Word or Internet Explorer… valuable applications that require the base operating system in place first.

We see the dynamic of altcoins to Bitcoin in the following chart – ETHBTC.

This chart specifically shows the relationship between Bitcoin and the altcoins… as this chart goes lower, it says go with Bitcoin… as the chart rises it says go with the altcoins.

Another space to consider is what coins can be used in a real transactional way… there are many to choose from, but I would suggest Ripple as it has the highest order acceptance of the bunch by banks and institutions. Here is a chart of Ripple that shows the potential upside move if the entire crypto space continues to grow.

XRPUSD

Simply put, the crypto space is much larger than just Bitcoin. Bitcoin is the door into crypto and the funding currency for a lot of the coins and projects in the space, but the real growth drivers both in terms of technology and in store of wealth may actually be found in the altcoins.

A mix of 75/25% Bitcoin and altcoins makes sense for most investors’ crypto portfolios as that provides access to the most accepted coin, while at the same time allowing exponential growth if the altcoin space really takes off.