When you look at a table of cryptocurrencies on a website, unlike in the world of stocks, they are listed by market cap. This in a way is an example of the newness of the market. There are no sectors, indexes or ETFs--the market is judged by size alone.
However, this is misleading, because all crypto are not the same.
[Ed note: Investing in cryptocoins or tokens is highly speculative and the market is largely unregulated. Anyone considering it should be prepared to lose their entire investment.]
An ERC20 token, which makes up a huge slug of the crypto landscape, is not a cryptocurrency like bitcoin. Tokens act like securities and are considered as such by the formidable regulators like the SEC. You can see a list here.
Cryptocoins are currencies and are considered from a regulatorial position as commodities. Here is a list.
Not all of these are equal. Some are centralized and unminable and some are, like bitcoin, decentralized and minable. Here is a list of distributed cryptocurrency built on the bitcoin model of distributed, trustless, decentralized tech-utopian ideal and ones that deviate by being centralized. Here's the whole universe.
The key takeaway is that these categories are very different. They are as different as Forex is to stocks, as stocks are to commodities.
All these categories might be huge but all might not survive. For instance, bitcoin is still the king and its share of the market has regrown in the crash. Initial coin offerings bubbled up the token market from nowhere but the new ICO landscape has almost evaporated for now. Yet ICOs represent a revolutionary way of raising finance and are highly likely to come storming back. Kickstarters are cool but ICOs are cooler still.
The whole field is wide open and ripe for another boom event but investors need to split cryptos up into these three sectors, and there is a forth--blockchain equities. I predicted blockchain equities would explode and they did, in both senses. This phenomenon will come again and blockchain equities are already starting to twitch back into life as I write.
Personally, I like blockchain equities and bitcoin and bitcoin-like decentralized minable coins. ICOs are definitely worth a look if they are more than pipe dreams floated by hucksters. That goes for the centralized private blockchain outfits too, if the structure of their coin is not a lobster pot for unwary gamblers.
Which brings me to my final point and idea. I invest in what I call ‘blue crypts,’ which is a play on the words ‘blue chips.’ These are big cryptos I consider built for the long term. Investors should buy and hold blue crypts but trade the rest.
Blue crypts can be what you want them to be but for me:
- The crypto must be validated by the passage of time.
- It needs a ‘use case.’ The crypto has to have a purpose and it has to be different or way better than bitcoins at a certain application.
- The crypto has to have a team of non-shady people behind it. Crazy kids are just fine, but international bandits, not fine. The people/organization has to be active.
- The crypto has to have a big market cap.
That doesn’t mean you can’t HODL a minnow or trade a blue crypt but when you look at what is out there and ask, “What is a crypto blue chip, the universe of coins and tokens shrinks dramatically.
What blue crypts do I own?
I own a lot of coins but the blue crypts are bitcoin, litecoin, bitcoin cash, monero and dogecoin.
No surprises there, but when you think about it, there shouldn’t be.
For you there might be others, ethereum would be on most people’s list, but the idea is if you are going to invest you need a blue crypt backbone to your portfolio and only the very best should do. Otherwise you will be caught in the predicament of people that trade penny stocks and end up with a bag of dust and losses.
Disclaimer: I own bitcoin, litecoin, bitcoin cash, monero, dogecoin and many other crypto coins.
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Clem Chambers is the CEO of private investors Web site ADVFN.com and author of Be Rich, The Game in Wall Street and Trading Cryptocurrencies: A Beginner’s Guide.
