Published: December 8th, 2020
Bitcoin has managed an impressive performance in the last quarter of 2020. The virtual currency surged modestly in October and astronomically in November, hitting a new all-time high. However, it is not the only shining star in the sky. If anything, some six cryptocurrencies have outshined it in the past few days.
Ethereum (ETH), Litecoin (LTC), Ripple (XRP), and three other cryptocurrencies are threatening Bitcoin's recent rally. The said cryptocurrencies, which include Polkadot (DOT), Cardano (ADA), and Stellar (XLM), have considerably outpaced Bitcoin's overly speculative four-week rally.
While the world's first cryptocurrency surged by about 15% in the past week and inked a new all-time high of $19,860, Ethereum, the second-largest coin by market capitalization, gained more than 20% in the last week alone.
Ripple, the third-largest crypto, rose nearly 25%. Aside from the two, Litecoin, Polkadot, Cardano, and Stellar, which are among the top 12 most significant coins, also managed gains that outstripped Bitcoin's incline.
Greg King, the CEO of Osprey Funds, says that part of what is happening is simple math. Smaller coins have the potential to record considerably larger percentage moves, he added. King thinks that because of the said feature, the cryptocurrency space indicates that there are many other coins that investors can back.
The current crypto rally brings the value of Bitcoin (market capitalization) to $360 billion. By Friday, November 4, the market cap of Ethereum was slightly more than $70 billion, while Ripple stood at about $30 billion. Litecoin had a market cap of just under $6 billion.
King said that the current situation makes it sensible for investors to hold a portfolio consisting of Bitcoin and Ethereum for the long-term and balance it all out with some altcoins for trading.
Market analysts agree that the altcoins are riding the wave that took Bitcoin to a new all-time high. The said wave has majorly been spurred by the market's expectations of an extended period of low-interest rates. Investors are worried that keeping interest rates for long will create inflation and make digital currencies appealing.
Michael Shaulov, the CEO of Fireblocks, a virtual currency security firm, said the prevailing economic environment is the cause of the currency cryptocurrency explosion. He added that the interest rate has exploded for stablecoins too. Paxos and Tether are doing exemplarily well.
Shaulov said the proposed unveiling of Facebook-backed Libra, soon to be rebranded as Diem, might increase the popularity of virtual currencies and drive more people to use these coins. He added that if that happens, more cryptocurrencies may surge.
Besides, more users are gravitating to other altcoins because the fears that Bitcoin has swollen into a much bigger momentum trade than anticipated is now all too real, he added. Shaulov's thoughts are echoed by Brad Garlinghouse, CEO of Ripple, the company behind XRP. He said that when more and more people understand that they are bound to run into concentration risk when they invest in only one asset, a diversification becomes imminent with more people branching to other altcoins.
Many experts agree that there is more to cryptocurrency trading than just betting on Bitcoin. Rachid Ajaja, CEO and founder of AllianceBlock, a De-Fi startup that seeks to disrupt the investment banking model by bridging traditional banks with AI-powered decentralized ecosystems, agrees.
He said that he foresees a situation where Ethereum might outperform Bitcoin in the next two years. He added that the rise is evident for other coins, especially for XRP, which has broken out of a perennial downward trend.
However, not all is well with every cryptocurrency, Rachid added. Even though most coins have impressed lately, several remain far below their peaks. Nicholas Pelecanos, who heads trading at NEM, a blockchain firm, said that a case in point is Ethereum. Pelecanos said that the world's second cryptocurrency is now exchanging at about $600, which he said is more than 50% less than its all-time peak in 2018 that was northwards of $1,400.
He said that more mainstream fund managers are demanding investment opportunities in the cryptocurrency space. As a result, the relative value of altcoins compared to Bitcoin is now emerging. Pelecanos added that because of the comparison and the relative importance of the coins presently, it is possible Ethereum still has more upside in it compared to Bitcoin.
Guy Hirsch, the U.S. managing director for brokerage and cryptocurrency trading firm, eToro, said that Ethereum and XRP are attracting more interest lately because the two coins have gained more credibility and recognition.
Hirsch thinks even some smaller cryptocurrencies may take advantage of the climate to stage impressive rallies. He said many such tokens, such as Terra (LUNA), VeChain (VET), and Compound (COMP), have already surged by more than 20% in the past month alone.
Besides, all significant cryptocurrencies started as small, nondescript coins, said Don Guo, the CEO of Broctagon Fintech Group. In any market on an upward trajectory, the cryptocurrency market included, many investors prefer to go for alternative investment options, Don added. Therefore, many smaller cryptocurrencies may become attractive to investors that hope to make a kill.
A situation that Guo envisions could be healthy for the entire cryptocurrency market. The same school of thought informs the stocks and equities markets on the appropriate time to put money on small-cap stocks instead of the giant tech stocks that dominate the Nasdaq and the S&P 500.
Denis Vinokourov, who heads the research unit at Bequant, a digital assets prime broker, said the crypto market is a lot bigger than Bitcoin, just as the equities markets stretch well past Apple.
Bitcoin has managed an impressive rally in the past three weeks, hitting a new all-time high just shy of $20,000. However, splendid as Bitcoin's rally was, it was overshadowed by the rise projected by six other cryptocurrencies, including Ethereum, XRP, Litecoin, and Cardano. All the said coins have rallied by more than 20%.