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Bitcoin’s dramatic rise may seem overly speculative. Yet bitcoin has lagged behind other cryptocurrencies.
While bitcoin has climbed 15% in the past week to a new all-time high just below $ 20,000, ethereum – the second largest cryptocurrency after bitcoin – has grown by more than 20% in the past seven days.
Meanwhile, XRP, the third largest cryptocurrency, has risen by nearly 25%. Litecoin, Polkadot, Cardano, and Stellar, all of which are among the top dozen largest cryptocurrencies, also enjoyed greater gains than bitcoin.
“Part of what’s going on is simple math. Smaller coins can be bigger [percentage] and there are many other currencies that people can invest in, ”said Greg King, CEO of Osprey Funds, a company that invests in digital currencies.
To this end, bitcoin is significantly larger than other cryptocurrencies, often referred to as altcoins.
The current value of all the bitcoins in circulation is around 360 billion dollars. Ethereum’s value is just north of $ 70 billion while XRP is around $ 30 billion. Litecoin, the fifth largest, is worth less than $ 6 billion.
“It makes sense for investors to have a long-term bitcoin and ethereum portfolio and own a basket of some of the others for trading,” King said.
Low rates and the weaker dollar are bullish for all cryptocurrencies
But these smaller coins are to some extent riding the hype that has taken bitcoin to a new record. Bitcoin benefited from a weaker dollar and expectations that a prolonged period of super low interest rates will eventually create inflation. This increases the attractiveness of a digital currency.
“The explosion of cryptocurrencies is a consequence of the economic environment,” said Michael Shaulov, CEO of Fireblocks, a digital asset security firm.
Shaulov added that interest has exploded in so-called stablecoins such as Tether and Paxos, cryptocurrencies backed by dollars, euros and other government currencies.
He said the looming launch of Facebook-backed Libra stablecoin, which is in the process of being renamed Diem, could also lead to more average consumers using cryptocurrencies.
Investors may also gravitate to other cryptocurrencies as they fear bitcoin is becoming too popular a momentum exchange.
“The one thing I think you will see more and more … is that people understand that when you invest in just one asset, you have a concentration risk,” said Brad Garlinghouse, CEO of Ripple, the company that helped launch XRP, in an interview with CNN’s Julia Chatterley on Wednesday.
“Diversification is important. Diversification reduces risk, ”Garlinghouse added.
Betting beyond bitcoin
Other experts agree that investors cannot bet on bitcoin alone.
“I can see a scenario where ethereum can potentially outperform bitcoin in the next year or so. Likewise XRP has finally come out of its downtrend,” said Rachid Ajaja, CEO and founder of AllianceBlock, in an email. to CNN Business.
While many cryptocurrencies have been performing well lately, many of them are still well below their peaks, unlike bitcoin. So they may have more room to catch up.
Nicholas Pelecanos, head of trading at blockchain company NEM, noted the example of Ethereum now trading around $ 615, more than 50% below its all-time high of over $ 1,400 since early 2018.
“There has been more demand from major cryptocurrency financial managers, and the big question is what the relative value of these altcoins is relative to bitcoin,” he said. “There is probably more upside in Ethereum than in bitcoin.”
Guy Hirsch, chief executive officer for the United States of eToro, a brokerage and trading firm, added that recently there has been more interest in ethereum and XRP as they have gained “more recognition and credibility”.
Some of the even smaller cryptocurrencies may rise further. Digital tokens such as VeChain, Terra, and Compound have increased by over 25% in the past week.
“All big altcoins started out as small coins,” Don Guo, CEO of Broctagon Fintech Group, said in an email to CNN Business. “If the cryptocurrency market is in an uptrend, we see that many small investors are actually looking to invest in the smaller coins to hopefully win the jackpot.”
This could be a healthy sign for the broader cryptocurrency market. It is similar to how stock market investors realize they need to invest in small cap stocks and not just the tech giants FAANG that dominate the S&P 500 and Nasdaq.
“There is more to the cryptocurrency market than to bitcoin, just as there is more to the stock market than Apple,” said Denis Vinokourov, head of research at first digital asset broker Bequant.
