If you’re new to cryptocurrency investing, it’s easy to fall into the trap of thinking bitcoin and ether – the native cryptocurrency of Ethereum – are the only solid, safe investment options in the market. And while many maximalists might agree with you, alternative cryptocurrencies (known as altcoins) are clearly on the rise.
According to the latest figures, bitcoin dominance as measured by market capitalization has fallen from 69% to 42% of the value of the total crypto market over the last year, while altcoins have risen from 11% to 21%. Non-fungible tokens (NFTs) and DeFi-related protocols are two likely catalysts for this change, as an increasing number of holders diversify into tokens tied to the rapidly growing ecosystems.
Diversification is important for managing and growing a portfolio, particularly if you’re new to investing. U.S billionaire Warren Buffett once said, “Diversification is protection against ignorance.” Isolating your investment to two coins out of the over 17,000+ possible options can not only amplify your risk but can also minimize your potential profits.
As such, it is advisable to look beyond the appeal of bitcoin and ether and consider allocating part of your portfolio to other promising crypto assets.
What you should look for when choosing an alternative crypto
When searching for alternative investment options in the crypto market, it’s important to evaluate the options you are considering to determine the ones that best fit your investment strategy. Factors to evaluate include;
- Availability: This means how many exchanges or platforms list the particular crypto asset. Is it easy to buy and sell large volumes at any given time? Is the token supported across multiple blockchains?
- Roadmap developments: When investing for the long-term, you’ll want to make sure the underlying cryptocurrency project has a strong future development plan, including the addition of new features, partnerships and updates. These should help support the corresponding token’s price over time and attract new investors to the project.
- Investment viability: It is critical to analyze the viability of the digital assets you are considering investing in. You do not want to invest in a cryptocurrency whose value could potentially fall before your investment time horizon elapses. As such, you must identify the utilities of the token, how it stacks up against other competing projects and the strength of the community backing it.
- Crypto sector: When choosing a coin to add to your portfolio, it is crucial to avoid investing in a cluster of coins that tend to all move in tandem. In the crypto market, the prices of digital assets tackling similar industries or crypto sectors often rise and fall at the same time. For example, having too many DeFi tokens would likely expose you to unnecessary risks, especially during times when the DeFi market experiences a slump. To prevent this, you should spread your portfolio across various crypto sectors, including NFTs, DeFi, layer 2, crypto exchanges and the metaverse.
Here are some of the digital assets that should be on your radar.
Decentralized applications' platform coins
In particular, it focuses on optimizing decentralized finance (DeFi) such that DeFi apps can become accessible on a larger scale. Moreover, it has begun to make moves in the NFT space, thereby creating more reasons for users to engage with its network. As such, SOL, which is Solana’s native digital asset, has increasingly appealed to investors and dapp users alike such that its price grew by over 10,000% in 2021.
Also, the network hosts a vibrant staking economy with over 74% of the total supply of SOL currently being staked. For those unfamiliar with the term staking, it is the process of depositing or locking away an amount of tokens on a blockchain to become eligible to take up the role of a validator, or an active participant of the network, and, in turn, earn rewards.
Similar to how Solana and Binance Smart Chain are trying to dethrone Ethereum, Cardano has created a highly sophisticated infrastructure designed to eliminate some of the flaws of established crypto networks.
While the development of Cardano kicked off in 2017, it was not until 2021 that the team launched an upgrade that allowed the blockchain to provide smart contract functionality. This made it possible for Cardano to host and facilitate the creation of native decentralized applications that use smart contracts for their operations. Due to this infrastructural advancement and other factors, ADA, the native token of Cardano, experienced a 650% gain in 2021.
It is also worth mentioning that Cardano has one of the most attractive staking ecosystems, with 64% of ADA’s total supply currently being staked.
Layer 2 projects
Instead, it looks to optimize the Ethereum ecosystem by creating bridges between multiple different blockchains to create better interoperability. Polygon can also handle Ethereum transactions on its own blockchain, making them cheaper and faster, as well as helping to reduce congestion on Ethereum.
The project's native token, MATIC, is an Ethereum-based digital asset used as the settlement currency on Polygon and the cryptocurrency accepted for paying fees. Remarkably, the value of MATIC rose by 13,000% in 2021, making it a viable option for investors.
Like Polygon, Loopring is a layer 2 solution that looks to optimize the Ethereum ecosystem. More specifically, Loopring provides an off-chain solution that sits on top of Ethereum’s blockchain and processes transactions using a type of scaling technology called zero knowledge (zk) rollups.
As the name implies, zk rollups involve taking a batch of transactions, rolling them up into one transaction and creating a validity proof that shows all transactions inside the rollup are valid. The rolled up single transaction is then recorded on the blockchain. In short, it groups transactions together to make processing them faster, cheaper and more efficient.
It’s stated that, with the help of Loopring’s off-chain processing, Ethereum can increase its transaction throughput capability by 1,000x.
Over 2021, LRC token rose 1,160% and reached a new all-time high of $3.86 before correcting.
Decentraland is one of the torch-bearers of the explosive NFT market. The metaverse-like platform boasts a vibrant economy anchored by NFTs and the promise of owning a piece of a virtual world. Simply put, Decentraland is an increasingly-expanding, Ethereum-based pixelated virtual world where users can purchase parcels of land, build structures on them like casinos and theme parks and ultimately monetize them. While the land on Decentraland is represented by NFTs called LAND, the platform also issues its own utility token, called MANA, that players can use to buy avatars and in-game items like wearables on the platform’s native marketplace.
Also, users must burn MANA before they can acquire LAND tokens. This is part of the deflationary systems put in place to sustain the value of MANA. Notably, MANA, in tandem with the NFT market, had a record-breaking year in 2021, with its price soaring over 4,000%.
The Sandbox (SAND)
The Sandbox shares some similarities with Decentraland in that it is a virtual world powered by NFTs. In essence, it promotes creativity as it supplies building tools with which users can build, monetize and trade NFT-based digital assets. As a platform that depends on user-generated content, The Sandbox has also ensures that its users can participate in the governance and future planning of the project. This is where the SAND token comes into play.
The SAND token is a critical component of the platform’s governance system and allows holders to contribute actively to the development of the project. Also, SAND is the settlement currency for buying NFTs on the platform’s marketplace. Like MANA, SAND had an impressive run in 2021 and soared in price by over 15,000%.
Crypto exchange utility tokens
Binance coin (BNB)
Binance coin (BNB) is the utility token of the Binance ecosystem, which features an exchange service, a staking solution, a payment service, blockchain application networks and a crypto loan product. Simply put, BNB is to Binance Smart Chain what ether is to the Ethereum blockchain.
For the better part of 2021, BNB was featured among the top five cryptocurrencies by market cap and notably outperformed bitcoin and ether. BNB gained 1,344% in 2021, while bitcoin was up 73%, and the value of ether rose by 455%.
This was largely due to the growing adoption of the Binance Smart Chain (BSC) among DeFi and NFT users and developers. For those unfamiliar with Binance Smart Chain, it is considered one of the top alternatives to Ethereum because of its lower transaction fees and high transaction processing capabilities. And so, it is no surprise that its native digital asset has found success.
Crypto.com coin (CRO)
At the center of all this is Cyrpto.com coin (CRO) which serves as the utility token that users receive as rewards or utilize as the currency for settling fees. More importantly, CRO is the native token of Crypto.com’s two blockchains: the Crypto.com chain and the Ethereum Virtual Machine (EVM) compatible Cronos chain. Part of the on-chain utility of CRO is that it anchors the staking economies of Cronos and Crypto.com chain. Owing to the growing affluence of Crypto.com and the fact that users have access to a myriad of applications, it is no surprise that CRO is one of the promising crypto exchange utility tokens out there. Notably, the digital asset gained 850% over 2021.
The leader in news and information on cryptocurrency, digital assets and the future of money, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups. As part of their compensation, certain CoinDesk employees, including editorial employees, may receive exposure to DCG equity in the form of stock appreciation rights, which vest over a multi-year period. CoinDesk journalists are not allowed to purchase stock outright in DCG.