Shakespeare may have said it best in “Romeo and Juliet.” Cue Jules:
What’s in a name? That which we call a rose
By any other word would smell as sweet;
So Romeo would, were he not Romeo call’d . . .
A rose is a rose no matter what you call it—but is a bitcoin a bitcoin, no matter the name?
Should you invest in the Mother of all Digital Currencies, the bitcoin invented by unconfirmed creators in 2009, or will any fly-by-night arrival do? And if you stray from the progenitor that gave rise to this whole bubble, can you fare better in less populated parts of the market?
I am talking about the New Kids on the Blockchain. Ethereum, Litecoin, Zcash, Dash, Monero and on down to Faircoin, the 200th crypto based on total market cap, and beyond. They are among an estimated 1,200 versions of digital currencies you now can trade in, on any one of dozens of digital exchanges (Coinbase, GDAX, Binance, Kraken, Cryptorium etc.).
The price-movement spreads between any two of these currencies can be striking. A look at the top-10 previous 24 hours for Stellar (XLM), a 25% rise for Ripple and yet only a 1.9% lift for Monero and a 3.3% increase for bitcoin itself.
Millions of investors have crowded into the best-known play of buying into a sliver of bitcoin itself, sending the price aloft toward $20,000 in recent weeks, only to see it collapse to $12,000, rebuild to $16,000 and then fall back yet again this week. The other day, I’m having a drink with a couple of guys at the Chatham bar in Indianapolis, and I helped one of them open a new Coinbase account in a matter of minutes. He pumped $750 into it from his credit card and, moments later, said: “I can’t believe I just lost $70.”
Hey, if you haven’t sold, you haven’t lost.
Bitcoin is so volatile that we no longer are shocked by huge moves, if ever we were. As I got on the road yesterday morning to drive north up the entire, border-to-border western edge of the state of Indiana, heading back toward my base in Chicago, bitcoin was down 12% overnight. If the Nasdaq suddenly lost 12% it would be a national emergency.
Yet for all of bitcoin’s frenetic rise and fall and rise, some players seek better returns in the lesser known—where the ups and downs can be even sharper. Volatility yields far higher returns (for taking on far higher risk), and as stocks seemed to go nowhere but up for the past year and volatility went way down, some money flowed out of this safer haven to seek out greedier returns in the world of bitcoin.
These rookie investors are trading in and out of these currencies daily, similar to how the same kind of bettors were day-trading dotcom stocks right up to the bubble-burst and the ensuing Tech Wreck of 2000. I always wondered how many got out alive.
Trying your hand at betting on bitcoin’s stepsiblings carries higher risks. So many Initial Coin Offerings have come out, so fast, that some of them are bound to flop and others might be a scam from the get-go. The newer coins have far lower market caps, which means they can gyrate with even wilder volatility than bitcoin does.
For a look at more than a thousand cryptos and their prices, market caps and latest trade volumes, go to coinmarketcap.com/coins.
Plus, surfing back and forth among these currencies in the backwaters of online trading can be like jumping lines at a crowded supermarket. Just when you think you have switched to the fastest line, the shopper at your register wants to pay with a three-party paper check and she can’t find her ID, hang on… and the people in the line you left mock you by moving forward, lickety-split. Man! I hate that!
One guy I know reaped 50%-plus profits in bitcoin (BTC), sold out and reinvested in Ethereum (ETH) and Litecoin (LTC), got up 75% and then panicked in a flash crash, selling after prices took a dive and wiping out most of his gains. Bent on a comeback, he redirected his bets away from the GDAX exchange and over to Binance, where he imbibed in Ripple (XRP).
Caveat: Complicating matters, though, is the thicket of restrictions at various exchanges. Ripple, for example, must be bought at some exchanges by using only other digital coinage—not U.S. dollars. Yet paying in bitcoin to buy Ripple seems to defeat the purpose of betting on cryptos altogether. The idea is to swap your dollars for these au courant currencies in the digital realm, isn’t it?
Bitcoin has drawn the lion’s share of the $600 billion valuation that is assigned to crypto currently. One wonders, though, what the real figure is for the amount of actual dollars and euros invested in bitcoin in the past year, compared with the imputed value of what all 21 million bitcoins would be worth in total if you cashed them all in today.
But anyway… Bitcoin’s total value (aka market capitalization) is around $315 billion (at a total 21 million coins at $15,000 apiece, although coinmarketcap.com says only 16.7 million coins are in circulation and cites a lower value of $250 billion).
This market share of more than 50% makes bitcoin the safest cryptocurrency play.
The #2 crytpo by total value (aka market cap) is Ethereum, at $75 billion based on a price of $770 just before noon this morning. The #3 coin, by market cap, is Ripple, far cheaper per coin at a price of $1.83 and a total market cap of $70 billion. At #4 is the bitcoin spinoff or “fork,” bitcoin cash (BCH) at $47.8 billion and a price of $2,824, then Litecoin (LTC) at #5 ($13.8 billion at $254 apiece) and so on.
Go a few rungs lower and market cap plummets; by the 200th rung you get Faircoin, at a mere $57 million market cap and $1.09 apiece earlier today. Move on down to #1,065 and you get Nodecoin, with a total market cap of less than $8,000, a price of less than a nickel per coin—and a 19% gain in just the past hour!
Some people will make a killing by surfing all these wavelets, while others will just get killed. Some things to keep in mind if you dare take this on:
- This is so risky that even a lot of seasoned traders on Wall Street won’t come near it. They prefer to trade bitcoin futures on the CBOE and CME.
- If your appetite for risk is higher than the norm, play these extra cryptocurrencies. If you typically are a less-risky investor, play only bitcoin and the three or four other biggest coins by market cap.
- When investing in a bigger-cap coin, you can do research and analysis to help you decide where to bet. Teensy coins, however, have very little information to go on. Instead, take a sum you can afford to lose and spread it evenly among half a dozen choices, in the same way you would cover a bunch of numbers at one time at the roulette table.
- The cheaper the price, the higher leverage for a coin to rise in value. It is far easier for Ripple to double up to $4 apiece than it is for bitcoin to double to $30,000. Yes, it is a blinding glimpse of the obvious, and worth saying nonetheless.
- When in doubt, it may be best to bet on Ripple. It is the bitcoin of the lesser lights. It is priced at less than $2 per coin compared with $250 for Litecoin, the cheapest of the other top four cryptocurrencies. Its market cap of $70 billion compares with the total value of… Tesla.
One last thought for you on this expedition: Expect prices to fall instantly after you buy into any particular coin, that way you insulate yourself from shock and buyer’s remorse. Wait out the dips, enjoy the up-surges and be aware that the path to wealth is jagged and uneven. The only way to go up is to also be willing to go down.
Evan McDaniel, aka @sellputs, is a derivatives trader, algorithm wizard and advisor to hedge funds. You can reach him at email@example.com.
Some content provided by Dennis Kneale Media.