Gone are the days when Bitcoin was the only application for blockchain fanatics. There are now more than 4,000 cryptocurrencies to choose from, and while many have near-zero market shares, others have huge percentages and cult followings.
The various subsections of the market spawned by these currencies have different uses and growth potentials, making crypto trading more diverse and challenging than ever before.
Crypto is ever a volatile investment – Bitcoin, for example, has dropped to below USD $30,000 per coin after having been as high as $65,000 just a few months ago. Though it’s becoming more legitimized and mainstream, it’s unlikely that cryptocurrencies will ever be considered low-risk.
But that doesn’t stop seasoned traders and new investors alike from being drawn to the market. We’ll take a look at the three different classes of currencies which have become the new norm of the crypto market to give investors a better idea of the options available to them.
The new crypto landscape
Crypto fans tout numerous benefits of the technology, from democratizing finance to providing an anonymous, virtually unhackable payment solution. But with the proliferation of many new coins, there is a lot more to the market now than there once was. From the gags to the most stable players, the now-segmented market requires some review for anyone looking to invest.
The oldie but goodie: Bitcoin
Bitcoin (BTC) is the oldest and most popular cryptocurrency, traded on a number of mainstream platforms and widely accepted as a form of payment by many online merchants. The relative stability of BTC has caused it to be compared to gold, a safe-haven asset to weather inflation and market volatility. The truth of this comparison is a bit suspect – actual gold is still a better portfolio stabilizer than so-called digital gold – but Bitcoin does have some strengths over other currencies that make it a (slightly) less risky investment.
It is accepted widely as a payment method, which gives it practical value. It has also been around longer, making it easier for analysts to predict Bitcoin performance, even if it’s only a few weeks out. For new crypto investors, BTC might be the best way to get your feet wet while learning how the market works.
The surprisingly successful gag: Dogecoin
Another class of cryptocurrency has been lightly named “meme” coins, referring to currencies like Dogecoin (DOGE), which was branded based on the dog meme that helped it gain its fame. Dogecoin is generally thought of as a less serious and more faddish alternative to bigger players like Bitcoin. In fact, the coin’s creators initially started it as a joke in 2013 to make fun of how crypto loyalists planned to take over the financial world.
It’s more difficult to analyze the value and growth potential of meme coins because they currently have few serious uses. While more merchants are starting to accept DOGE, it certainly can’t be considered a reliable source of wealth to hold – even compared to other inherently volatile cryptocurrencies.
That being said, dogecoin is still on the rise with over 7,000% growth this year alone. Plus, with big names like Elon Musk in support of it, it will likely continue to grow for a while – even if that growth isn’t necessarily sustainable. While it may never seriously compete with giants like Bitcoin and Ethereum, dogecoin is at least the front-runner among meme coins.
The parent of DeFi: Ethereum
Etheruem (ETC) has increased 800% over the last year, much faster than BTC. It is also faster than Bitcoin in other ways – much of what Ethereum brings to the table is faster, cheaper, and more sustainable transactions.
These many uses cause experts to call Ethereum more of a business ecosystem for decentralized finance than a currency, and it’s future value will likely be tied to how it performs in other areas than just currency trading. Many of its newer uses, such as non-fungible tokens (NFTs), are revolutionizing industries other than finance as well.
Ethereum is considered a second-generation blockchain solution, younger than Bitcoin but still well-established with many options for having it securely stored. It’s an open-source project that any developer can build upon, and it’s foundational tech – smart contracts – has a lot more applications than simply payment and basic storage.
The future of cryptocurrencies
Even for established currencies, crypto trading is risky because of the volatility of the market, so anyone looking to trade should be wary.
Similarly, it is generally not advisable to invest more than a percentage of your total cash in cryptocurrencies. Analysts worry that the growing competition between Bitcoin, Etherum, and more minor players is exacerbating market volatility and will continue to do so in the future.
Cryptocurrencies have a lot of benefits for the financial industry, simplifying international trade with trustless, secure transactions. Global acceptance is tricky though, as different world governments respond to and attempt to regulate crypto in different ways. This can be problematic for market stability, as evidenced by events like the Bitcoin crash earlier this year in response to China’s crackdown.
Furthermore, the fact that the majority of Bitcoin is mined in Chinese data farms means any interference could not simply impact the stability of the market, but actually cut down the very principle on which cryptocurrency was founded – a financial solution without any one authority. The sustainability concerns with crypto mining add to the uncertainty. So, perhaps the best advice for crypto traders moving forward is to be suitably skeptical and avoid putting all your eggs in one digital basket.
From TikTok traders to DeFi democratizers, the current cryptocurrency market is looking different than it did just a few years ago. For would-be investors, it’s important to understand the different types of currencies in circulation and the pros and cons of each. The debate over whether crypto is a solution of limitless potential or a flash in the pan rages on, and all we can do is stay informed and continue to invest wisely.