Let’s take a look at major cryptocurrencies and how they have fared this year.
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Bitcoin ($426 billion):
Bitcoin is the largest and oldest cryptocurrency. It was launched in 2009 based on a paper written by Satoshi Nakamoto, a somewhat mysterious individual. The cryptocurrency has soared from less than $50 in 2009 to almost $23,000 at present. That represents a CAGR of around 75% in 11 years, a speed unrivalled by any traditional asset like equity, real estate or gold. The record of bitcoin ownership and transactions is stored simultaneously in thousands of computers and hence cannot be altered by any central authority. This gives bitcoin and other cryptocurrencies their USP and they continue to attract adherents. Bitcoin’s first big surge came in 2017 when it jumped from around $1,000 at the start of the year to just below $20,000 in December, a leap of 20 times in just a year. The cryptocurrency crashed the following year to around $3,200 by December 2018. However, investor skepticism with loose monetary policies of central banks in 2020 has led to a rebound, with bitcoin soaring back to its all time high and breaking records, at around $23,000.
2020 return: 3.10 times
Ethereum ($73 billion)
Ethereum is seen more as a medium of exchange than a store of value by cryptocurrency users. It was launched on a concept proposed by Vitalik Buterin, a Russian-Canadian programmer with the vision of facilitating smart contracts or contracts written in code. These smart contracts have the potential to combine cryptocurrency with the instruments of conventional finance such as borrowing of money against interest. Ethereum has gone from less than a dollar in 2015 to its current price of $644 in just 5 years, a jump of 644%. From 1 December0, Ethereum started a transition in its structure from proof of work to proof of stake, basically a shift aimed at making transactions in it cheaper, faster and less electricity intensive. Read more about this here .
Ethereum has mirrored bitcoin in its price performance but remains well below its all time high of around $1,350 in January 2018.
2020 return: 4.81 times
XRP or Ripple ($26 billion)
XRP is the currency created by Ripple Inc, a US company in 2012. XRP was designed for payments and remittances and operates in a manner similar to SWIFT, the network for moving money between banks. However, professionals remain skeptical of XRP. “I don’t see much value in XRP which has an enormous supply of 100 billion tokens compared to 21 million for bitcoin. It is also centralised, unlike bitcoin which diminishes its appeal,” said Gaurav Dahake, CEO, Bitbns, a Bengaluru-based cryptocurrency exchange.
2020 return: 3.33 times
Tether ($19 billion)
USD tether or USDT is a cryptocurrency that tries to mirror the US dollar on a 1:1 basis. Tether is issued by Tether Ltd, a company owned by the operator of Bitfinex, a cryptocurrency exchange in 2014. The originator claims that it is backed up by hard reserves of US dollars held by it directly or loaned to its subsidiaries. There are tether cryptos pegged to the Euro and Chinese Yuan as well, but the USD variant is the most popular of these. It is primarily used as a USD substitute by cryptocurrency traders and investors and since it is pegged to the USD dollar, it trades at a price of around $1 rather than appreciating or depreciating in value.
2020 return: Flat
Litecoin ($7 billion)
Litecoin is a Bitcoin spinoff launched by a Google engineer Charlie Lee in 2011 with the idea of speedier transactions than conventional bitcoin. It differs from bitcoin in some of its technical processes. Litecoin has risen from around $40 at the start of 2020 to $109 at present. Dahake took a cautious stance on the appeal of litecoin. “Litecoin was created as a faster bitcoin alternative but bitcoin isn’t used much for transactions anyway and hence litecoin hasn’t taken off,” he said.
2020 return: 2.72 times
“First time investors of cryptocurrency should invest in bitcoin rather than other cryptocurrencies, just as you would enter the stock market with bluechips rather than penny stocks. People have this misconception that they need to buy a whole Bitcoin. You can actually start with as little as Rs100 or lower,” said Arjun Vijay, co founder of the Chennai-based Giottus Cryptocurrency Exchange.
“Ethereum also has a lot of potential, especially as platform for decentralised apps that can compete with established popular apps like Airbnb or Uber,” he added. Financial advisors in India remain cautious on cryptocurrencies as investments given their high volatility and uncertain legal status in India.