By Andrey Dashkov, analyst, Casey Research
Bitcoin has been grabbing headlines lately… If you opened any financial website, you’d be bombarded with news and mainstream commentary about it.
CNBC, for example, has a new section on its website dedicated to the “bitcoin tipping point.”
Ray Dalio, one of the world’s most famous and influential hedge fund managers, called bitcoin “one hell of an invention.”
But there are plenty of skeptics, too…
Janet Yellen, the Federal Reserve’s former chief and the current Treasury secretary, referred to bitcoin as “extremely inefficient.”
Either way, bitcoin’s earned its coverage… the cryptocurrency appreciated by 305% in 2020. Right now, its market capitalization is about $900 billion.
As I’ve said before, even at current levels I think bitcoin is a great investment opportunity. There’s no doubt that it’s the biggest player in town. But it isn’t the only player in town…
And here at Casey Research, we look for opportunities with significant upside potential. So today, I want to put some bitcoin alternatives (called “altcoins”) on your radar.
Below, I’ll explain how they can provide greater upside… And I’ll share the altcoin that I think every contrarian should consider holding in their portfolio…
The Altcoin Universe
Altcoins are typically smaller and more volatile than larger players like bitcoin. So, the ideal altcoin will need to provide greater upside to make up for that added risk.
But before I get to that, it’s important to have an idea of the different kinds of altcoins out there. There are four main types:
Mining-based. Like bitcoin, people “mine” these altcoins by supporting and maintaining the database of the network’s financial transactions. And these miners are rewarded with coins.
Stablecoins. Think of these as “crypto ETFs.” They move along with an underlying asset, such as the U.S. dollar, which makes them more stable, as the name implies. But that also means they provide limited upside.
Security tokens. Think of these as shares in a startup. Companies issue them to raise money. That means though they can be risky… they can also have explosive upside. But approach these carefully. A lot of them are scams, pure and simple.
Utility tokens. You can use these to pay for services within certain networks. Think of these as chips in a casino. You can pay for things within the casino, exchange your chips for someone else’s or for cash, but you can’t go outside and buy a cup of coffee with them.
I like mining-based altcoins, because the economics of mining drive the fundamental value and expansion of those currencies. In other words, making money is a powerful incentive. And mining-based cryptos provide this incentive by design.
But not all mining-based cryptocurrencies are created equal. That’s why I’m looking at one in particular…
Ether’s “Junior” to Bitcoin’s “Major”
Ether is a mining-based crypto, and one of the largest bitcoin alternatives. The Ethereum network hosts decentralized apps (dapps), and incentivizes people to build these dapps by removing centralized administrators. In other words, dapp builders are able to earn money directly from consumers.
It’s all part of Ethereum’s mission to make a decentralized world computer – one that no one would ever be able to regulate, censor, or shut down.
If you’ve been following along in the Dispatch, you know we’re not fans of government overreach. That’s one of the reasons why I like ether.
Ether has two key drivers: growth in dapps, and its growing popularity in the crypto space. Finding cryptos with different drivers is like finding stocks with different catalysts. They go up for slightly different reasons and they have different risk-reward setups. That’s good for a robust portfolio.
And that’s why I think ether is a great altcoin to add to your portfolio, especially if you already hold some bitcoin.
Why You Should Hold Ether in Your Portfolio
First, ether’s developing really fast.
There are already over 3,700 dapps running on the Ethereum platform – and growing. In January and February this year, about 60 new dapps were launched.
Plus, the Ethereum network has been evolving to reduce fees and energy use. Its maintenance, like bitcoin’s, requires solving complex equations. Which requires lots of power…
So making it more affordable and accessible will attract more users and investors.
And I think it has lots of upside potential ahead.
It’s already outperformed bitcoin in 2020, soaring nearly 476%. But I think that’s just the beginning.
The network is planning to roll out its 2.0 upgrade by 2022. These new additions will target some of the most-needed areas of improvement, including speed, security, and scalability of the Ethereum network.
That’s good, because it will help the network accommodate more transactions. And that’ll only help boost its popularity – and its price…
So I recommend you consider adding some ether to your portfolio. Keep in mind, it is volatile. So make sure you limit your exposure, and don’t bet more than you can afford. I recommend a 1%–2% allocation, to start.
Analyst, Casey Research