Crypto Alphabet Soup
There are a ton of cryptocurrencies out there, here's how I group and consider them
In the last two posts, I gave the background on Bitcoin and Ethereum. As we covered, the two largest cryptocurrencies make up about 62% of the market cap of all coins. The other 38% is split between hundreds of coins ranging from fairly big to total garbage. Let’s roll through the categories and some of the more well-known examples.
We’ve discussed that Bitcoin is generally considered a store of value coin, used for investment and also for transactions, like digital money. The massive success of Bitcoin has led to a ton of lookalikes. There are coins like Litecoin ($LTC) that were created to be faster, cheaper, and more energy efficient than Bitcoin. LTC has a market cap of $10.5Bn. There are several coins like Dogecoin and SHIBA INU that were tributes to dogs and have become popular internet memes. Elon Musk, Mark Cuban, and other celebs have gotten in on the joke and pushed the value of these coins up significantly. DOGE and SHIB have market caps in the $20Bn range each. Many other wannabe store of value coins exist, the market derisively refers to the worst of these as “Shitcoins”.
When we covered the leading programmable coin Ethereum, we spoke about the high cost of transactions. As a result, several legitimate competitors to ETH have emerged. Solana ($SOL) burst onto the scene in 2021. Major venture firms have partnered with the team that built SOL, and they have backed companies building applications in digital art and gaming on the SOL chain. The market cap of SOL has rocketed to $57Bn, up 100x this year. Another coin to watch in this space is Cardano ($ADA). This coin has a strong founding team and great backers as well, but it is not live for developers to create anything on it yet. Still ADA is up 10x this year and sports a market cap of $43Bn. The list here goes on a long way, as the market certainly sees room for multiple sizeable coins in this sector. Polkadot ($DOT) has a $27Bn market cap, and Avalanche ($AVAX) is up to $20Bn. Polygon ($MATIC) is a way to build upon the Ethereum blockchain for bulk transactions, and this coin has rocketed to a $14Bn market cap. We will devote more time to these types of coins in future posts for sure.
To facilitate transactions in cryptocurrencies, a class of stable coins has emerged. These coins are typically built on top of the Ethereum blockchain, and they aim to maintain a peg to the US Dollar. Tether ($USDT) and USD Coin ($USDC) are the two largest, with market caps of $75Bn and $40Bn respectively. There are a ton of competitor stable coins that are smaller in size. These coins are usually backed by liquid assets. However, unlike bank accounts or money market funds, they are not currently regulated or insured. I happen to think the collapse of a stable coin is one of the biggest risks to the cryptocurrency market. I think we will see regulation on this product soon, hopefully in 2022.
The last category we will cover in this post is a bit of a catchall, which I’ll refer to as utility coins. Coins have been created to allow for borrowing and lending, often referred to Decentralized Finance or DeFi, for decentralized trading, for gaming, for virtual worlds, for music, and much more. Binance Coin ($BNB) was set up by an exchange and is popular for borrow/lending transactions, and it has a market cap of $85Bn. Uniswap is the biggest decentralized trading exchange, and it is where many of the smaller coins are traded. Uniswap has its own coin $UNI which has a market cap of $10Bn. Decentraland is a popular virtual world or metaverse, and its $MANA coin is up to a $6Bn market cap. $RALLY is used for influencers to make coins for their fans, and it has a market cap just under $1Bn. There are lots more coins in this category, I’m sure we will touch on a number of these soon.
By now you get that there are a ton of coins and a lot of use cases for cryptocurrencies. Hopefully you are curious to learn more about these, I’ll have lots more to say on these in future posts. Please subscribe to this newsletter to stay on this knowledge journey with me.
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