These three cryptocurrencies all have notable competitive advantages.
Cryptocurrencies are known for their incredible growth potential, and $1,000 is more than enough to start a portfolio of quality coins. The challenge is sorting through the extensive number of cryptocurrencies and finding the ones that are good investments.
It may be tempting to buy lots of different cryptocurrencies to have more chances of picking winners, but in truth, most aren’t worth your money. You’re better off sticking to cryptocurrencies with legitimate use cases and the potential to stand the test of time. Here are the three I’d recommend.
Ethereum (ETH -4.23%) has been the second-largest cryptocurrency by market cap since 2016. Its success comes from being the first blockchain to popularize smart contracts, which are blockchain programs that can self-execute when pre-specified conditions are met.
Smart contracts were a leap forward for cryptocurrencies and blockchain technology. With smart contracts, developers can build all kinds of decentralized services into a blockchain, including crypto lending platforms, exchanges, and games. One of the most popular uses right now is decentralized finance (DeFi), blockchain-based alternatives to traditional financial services.
Many other blockchains now have smart contract capabilities and compete with Ethereum, but it’s not a close race. Ethereum is the top blockchain in terms of the total value locked (TVL) into its smart contracts, with about $82 billion as of Oct. 11, per DeFiLlama. In second place is Solana, with about $10 billion. Ethereum’s market share is over 60%.
Ethereum is one of the few cryptocurrencies that has been successful for over a decade — it launched on July 30, 2015. Given that, and its dominance as a blockchain platform, it’s a great choice to buy and hold. Ethereum also offers cryptocurrency staking, where holders can become part of the transaction validation process. You can do this yourself or through some crypto exchanges, and it allows you to earn rewards on your Ethereum holdings.
No cryptocurrency has been anywhere near as successful as Bitcoin (BTC -3.45%). It’s worth about $2.2 trillion, over 60% of the entire crypto market.
One of the main reasons Bitcoin has value is its built-in scarcity. There’s no maximum supply with many cryptocurrencies, and with fiat currencies either, for that matter. Bitcoin has a limit of 21 million BTC, and once they’ve all been mined, no more Bitcoin can be issued. Proponents of Bitcoin believe that the fixed supply will drive up its price, similar to how the rarity of gold has caused the price to increase over time.
That has been true to this point. Over the last 10 years, Bitcoin has returned over 45,000%. And last year, the Securities and Exchange Commission (SEC) approved the first Bitcoin ETFs, opening the door for institutional investors to start buying Bitcoin. Since then, Bitcoin ETFs have received inflows of about $63 billion.
On their own, blockchains are self-contained, without access to external (real-world) data. This is a significant limitation that’s solved by Chainlink (LINK -5.04%), a blockchain oracle network. Chainklink transfers tamper-proof external data to smart contracts on blockchains.
For example, several major blockchains have started offering tokenized versions of real world assets (RWAs), including stocks of popular companies and ETFs. There are a couple of hurdles for this to work. The digital token must be backed by ownership of the RWA. Real-time pricing data is also needed to ensure the price of the token matches that of the RWA. Chainlink enables RWAs by providing proof of reserve and price data feed services.
One of the exciting things about Chainlink is that it works with big names in both the traditional finance and DeFi spaces. It has collaborated with JPMorgan Chase and Mastercard on payment rail projects. Chainlink also reports that its oracle platform powers nearly 70% of the DeFi market, including crypto lending protocol Aave. In addition, Chainlink has worked with the U.S. Department of Commerce to bring macroeconomic data to the blockchain.
Cryptocurrency investing is a high-risk venture, so it’s not the place for your only $1,000. But if you’ve already been investing in stocks, and you want to diversify into digital assets, the above three all have unique advantages over the rest of the crypto market.
