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If Not Bitcoin, Then Where Are The Crypto Market Returns Coming From?


Bitcoin
Bitcoin

Cryptocurrencies, like Bitcoin and Ethereum, have come a long way as there are now over 5,000 digital currencies in existence. Although only the top 10 cryptocurrencies are considered the most tradeable and make up over +70% of the market, this massive adoption and population speak volumes about the state of crypto.

As you go down the cryptocurrency “rabbit hole” you start to hear of multiple cryptocurrencies or ‘coins’ as they’re called. From the main coins like Bitcoin and Ethereum to the less well-known coins of Solana and Polkadot, the crypto market can be a confusing place to understand.

So what is the best way to invest in this complex market?

How can one get the best exposure without having to understand multiple coins and read countless research reports?

Let’s follow the returns. 

Source of returns: Alternative coins

Although Bitcoin grabs all the headlines, the alternative cryptocurrencies, known as “alt-coins”, have been amassing even more impressive returns.

The total cryptocurrency market size (excluding Bitcoin) has grown +772% over the past year (vs Bitcoin’s +300% gain). This shows that alternative coins are driving growth in the overall cryptocurrency market. This is partly due to the rise in various cryptocurrency sub-sectors, including decentralised finance (DeFi) and non-fungible tokens (NFTs).

DeFi is a subsector of the cryptocurrency industry challenging traditional financial institutions, including banks, insurance companies and stockbrokers, where entrepreneurs build semi-automated trading and lending systems atop blockchain networks.

NFTs are “one-of-a-kind” assets in the digital world that can be bought and sold like any other piece of property. The digital tokens can be thought of as certificates of ownership for virtual assets (such as in-app items and digital art) or physical assets (such as real-life paintings and even houses). These certificates of ownership are recorded on a blockchain.

The NFT market hit new highs in 2021, with more than 30x the sales of 2020, you can understand why many blockchain networks facilitating these transactions have received increased attention.

Due to the young nature of the cryptocurrency ecosystem, basically, every coin is fighting for market share, but with this comes opportunity.

Many outperforming returns can be found outside the normal areas of Bitcoin and Ethereum.

A Closer Look: Single coins

Over the past 12-months, Solana (+4,006%), Cardano (+2,007%), Binance coin (+976%) and Ethereum (+626%) have generated astonishing returns when compared to the likes of Bitcoin (+255%).

This goes to show you that by not holding some of these “lesser-known” coins you could be missing out on some pretty remarkable returns.

But how do we know which coins to add?

At a glance, the cryptocurrency market can be an overwhelming place, especially for those not well-versed in it.

Much like the internet boom of the early 2000s, thousands of blockchain-based projects are being developed, and loads of confusing jargon and technical slang are being shared far and wide.

This makes it near impossible to pick the next Amazon or Google of the cryptocurrency world and, tougher yet, hold onto them for a sustained period of time.

It’s all about crypto portfolio diversification

Diversification is a bedrock principle of sound investing, and with cryptocurrencies, diversification is arguably more important.

Crypto portfolio diversification is the act of putting your money into different cryptocurrencies to mitigate risk if one or more projects perform poorly.

Many crypto investors only hold a single crypto, like Bitcoin, but this approach is extremely high risk because now your entire return is attached to the success or failure of one coin.

To make choosing harder, a coin’s success or failure is based on an immature market. A market where every coin is fighting tooth and nail to win – and become the next ‘Amazon’ like success story in the world of crypto. This is not only a risk but a mistake as an investor to guess which crypto project will win where some of these coins only have a couple of years of history.

So how do you get exposure to crypto in a safe and secure way?

One approach to get exposure to potential winners and to increase your chances of owning the next Bitcoin is to equally spread your investments across a ready-made “Bundle” of cryptocurrencies. This gives you an equal opportunity to get increased returns over multiple cryptocurrencies as opposed to just one and gives you a greater chance of catching multiple winners each month if your diversified portfolio is adjusted every month to track the top assets at that time.

As proof of the benefit of diversifying, consider that while…



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