Let’s get one thing out of the way right off the bat.
The cryptocurrencies in this report are all risky.
That’s not meant to put you off.
It’s more of a reality check — especially with touts talking up insane returns everywhere you look.
Cryptocurrencies are an entirely new asset class.
Anyone who tells you they know the value of cryptos… they’re lying.
Nobody knows their value. We’ve never had an asset class/currency/store of wealth like this before.
Everything to do with cryptos is sui generis. Everything is new.
And that means everything is almost entirely unpredictable.
But that doesn’t mean we can’t assign some max values to cryptos. Let’s use bitcoin as an example.
From Zero to $360 Trillion
As I write this — at 2 pm on Thursday, July 1, 2021 — the bitcoin market cap is $626 billion and change (I can virtually guarantee that whenever you’re reading this, it will be very different).
And as of 2019, there was about $360 trillion in total wealth in the entire world.
That means if every single person decided to liquidate all their assets, sell all their property, get rid of every commodity, and convert everything to bitcoin…
The bitcoin market cap would become $360 trillion.
(Well, not really — if everyone sold everything and there were no buyers, prices would quickly collapse to zero and wipe out a huge chunk of value… but let’s ignore that for this simple thought experiment).
To reach $360 trillion, the bitcoin market cap would have to multiply 575 times.
So the value of a single bitcoin would become $33,500 (today’s value) times 575 – a bit over $19.25 million.
So we’ve established a totally ridiculous max value.
As for the absolute minimum?
Well, governments around the world might decide they don’t appreciate having a rogue currency out there. So they all outlaw it while releasing their own government-backed cryptocurrencies (often called Govcoins)… and bitcoin could go to zero.
Those are your back-of-the-napkin parameters. All the money in the world… or none of it.
I feel pretty confident within those borders!
But you can make a pretty good case for nearly any value inside those extremes.
And that’s because of the power of the blockchain.
Blockchain Takes Over the World
The blockchain is probably the greatest financial invention of the past century.
In fact, it may wind up going down as one of the most monumental financial inventions of all time.
It’s such a powerful tool that it’s nearly a foregone conclusion that much of the financial industry will run on it inside a decade or two.
It’s already happening. For example, El Salvador is accepting bitcoin as legal currency, the United Kingdom is moving its land registry to the blockchain by 2022, and China is quickly developing, testing, and releasing its own Govcoin – a digital yuan based on the blockchain (with the U.S. Fed quickly following suit).
The reason is simple.
The blockchain looks ready to take over the financial world. It’s a better method of tracking transactions – with fewer costs, fewer chances for error, greater security, and fewer middlemen. It creates trust because every transaction is instantaneously recorded and tracked in multiple places, with each one checking the work of all the others.
That might not sound radical.
But consider that the invention of dual-entry bookkeeping — where a single third-party records transactions between a buyer and seller — arguably ended the Dark Ages and kicked off the Renaissance.
Dual-entry bookkeeping made modern finance possible — everything from bank loans to functioning equity markets that don’t require trust between strangers.
Think how hard it would be to trade stocks if you had to completely trust the person selling their shares to deliver them to you. Or trust the person buying your shares to actually pay.
Or even the fact that, without dual entry bookkeeping, you’d have to find someone selling a share yourself, instead of having a marketplace that enables all those transactions.
Dual-entry solved those problems, and many others.
Not that anyone in medieval Venice realized it.
They couldn’t imagine what dual-entry bookkeeping would lead to.
Today, the blockchain is busy solving the problems we’ve got in the dual-entry system.
To start, the blockchain is eliminating the need for middle men that profit from being trusted third parties (read: banks and brokers, with their obscene salaries).
But that’s just the beginning. Just as a Venetian merchant in 1500 couldn’t imagine the modern options market, we can’t imagine where the blockchain will lead.
All we know at this point is that it will lead to some surprising places.
And it will probably take a reincarnation of Adam Smith before we really get a handle on how our economic future will play out.
Too Big to Miss
Even though we don’t yet know all the repercussions, you can see why everyone who understands the power of the blockchain is so excited to participate.
There are no perfect comparisons, but it’s a bit like having a chance to invest in the first major banks when they were startups (did you know many banks had their own currencies before the Civil War?)
That’s the stage we’re at now.
Combine potential blockchain growth with a healthy dollop of FOMO, and it becomes clear why everyone is interested in cryptos.
Cryptos are the best way to buy into blockchain technology today.
Plus, investors remember the impressive gains the first bitcoin buyers realized.
Some folks bought thousands of bitcoin back when they were about a dime apiece.
Those folks were up 900% when bitcoin broke through the dollar barrier.
Multiply that by 35,000 or so — to get to today’s bitcoin prices — and you can see why there’s a digital gold fever gripping people around the globe — from the sophisticated, to the clueless.
But bitcoin can’t repeat those early gains at this point. It’s already too large — there isn’t enough wealth in the world.
Similarly, Ethereum — the second-largest crypto — is now too large to turn the price of a nice meal into millions.
Blue-Chip Cryptos… and Then What?
It feels silly to say, but bitcoin and Ethereum are essentially now the blue chips of the crypto world. They make up over 60% of the market combined.
Is this a problem?
Well, they’re popular and expensive… but also the most trustworthy. They have plenty of room left to run, too, and can continue to notch market-beating gains for years.
Heck, right now, you can make 5% yields when you stake your Ethereum — which is a lot like loaning it out and getting paid interest for your troubles.
What’s more, as the most venerable and established cryptocurrencies, both Ethereum and bitcoin are good bets to still be around in five or 10 years.
That’s why we recommend adding them to your portfolio if you’re interested in cryptos.
The trouble is, even as they become more firmly entrenched in the financial system, their high price tags mean they could also underperform compared to the overall crypto world.
Believe it or not, there are nearly 11,000 different cryptocurrencies out there today… with more popping up just about daily.
And the biggest gains going forward likely won’t be coming from bitcoin or Ethereum… but from one of those small alternative cryptos (Altcoins) that most people haven’t heard of yet.
This puts the wise investor in a difficult position.
First off, with so many cryptos out there, how can you possibly choose the right ones?
And second, the risk is high enough with all cryptos (including bitcoin) that you need outsized gains to make the juice worth the squeeze.
But most people don’t want just outsized gains. They want to be the next crypto billionaires.
The younger, newer, and more unique cryptos are still small enough that if you choose the right one, you could potentially enjoy the kind of gains that early bitcoin investors did.
However, every other crypto out there is incredibly risky and could disappear at any moment.
So how do you invest as safely and as profitably as possible?
Your Magnificent Crypto Five
If you want to enter the crypto market seriously, you must do so logically.
That’s why we recommend buying a basket of cryptos.
Have bitcoin and Ethereum in your portfolio, so you have a backstop of value.
And then add a few more — knowing that some might not exist in a few years, but others could shoot up by 1,000%, or 9,000%. The sky’s the limit.
Do we know which of the approximately 11,000 cryptos out there will be the big winners?
No.
But we can take some educated guesses.
So consider the following five altcoins.
Each one has a story — and a reason why it could catch fire and become the next major cryptocurrency.
Each one also faces stiff competition from the others, and could disappear at any time.
That’s why it’s so important to take as many swings as you can.
Honestly, even holding seven cryptos — the following five, plus bitcoin and Ethereum — isn’t enough to cover your bases.
But it’s a strong start.
And you can add to the basket over time, as more cryptos emerge and start to separate from the pack.
Here are the five that deserve consideration for your portfolio today.
Crypto #1: Litecoin (CCC: LTC)
A few years back, some folks thought of Litecoin as the third major cryptocurrency.
For a time, Coinbase only traded three cryptos — bitcoin, Ethereum, and Litecoin.
Since then, others cryptos have surpassed Litecoin — in both value and in hype.
But Litecoin keeps chugging along.
Its biggest differentiator is that it was designed to make crypto transactions easier, faster, and cheaper.
Transaction and processing fees are near zero. And they’re also processed nearly instantaneously — something not true of bitcoin or Ethereum (at least not yet).
And unlike some other cryptos, Litecoin is entirely open-source, entirely decentralized, and has no governing body overseeing its use.
If and when cryptos are used more often as actual currency — to make online purchases and payments — Litecoin’s superior infrastructure may make it a popular choice.
And if more and more transactions happen in Litecoin, the demand for coins (and their price) should shoot up.
That’s the theory anyway.
Will it come true? Well, we’re still in the early stages, when it’s mostly investors and speculators holding cryptos.
When cryptos become more widespread, the market will look very different.
And Litecoin might just get its day in the sun.
It’s a possibility you want covered in your portfolio.
Crypto #2: Ripple (CCC: XRP)
On the other side of the spectrum lies Ripple.
Ripple has the most centralized infrastructure, with a central governing authority running the platform.
Rather than taking advantage of the decentralized possibilities that grow from blockchain, Ripple is betting that governments, regulation, and a few big players will eventually rule the roost.
That’s not a bad bet. In the 1990s, everyone talked about the internet as a democratizing force. But a couple of decades later, it’s produced just a few giant companies that dominate the landscape.
Ripple already has exploratory deals in place with a few different countries, as they consider using its technology to underpin their own digital currencies.
Ripple wants to play with the big boys almost exclusively.
Ripple is also the first crypto to get hit with an SEC lawsuit — which has led to a number of platforms freezing Ripple trading.
But I’m not particularly worried about the SEC issues.
For one thing, it looks like an especially weak case. The SEC is charging Ripple with not following the rules for selling or trading a security… which is what the SEC recently declared cryptocurrencies.
The problem is that Ripple and other cryptos have asked for clarification on that subject from the SEC for years now — specifically so they know what rules to follow!
Some countries treat cryptos as securities, some treat them as currencies, or commodities — there’s no agreed definition yet (and, in truth, regulators will eventually have to realize that cryptos are their own thing, which don’t fit in previous boxes).
The SEC has chosen Ripple to declare that cryptocurrencies securities. And that may stick.
But Ripple isn’t likely to face any real consequences for not following the rules before any rules were in place!
You can’t make a rule and retroactively apply it. That sort of kangaroo court logic is routinely thrown out by judges.
What’s more, this lawsuit isn’t just about Ripple. It’s about all cryptos.
Ripple just made for the easiest first target. Because it’s centralized, there’s an address where you can deliver the lawsuit.
Yes — sometimes, it’s really that simple (and stupid).
But being the first to go through regulatory scrutiny may actually turn into a blessing later.
If others go through the same process, they won’t have the excuse of ignorance that Ripple has.
Of course, the lawsuit has hurt Ripple’s price. But that makes for a more attractive entry point.
As does the lack of easy platforms on which to trade Ripple.
Sure… there’s plenty of risk when dealing with a coin that’s under federal scrutiny. But compared to the overall risk of cryptos, investors have overreacted.
Now is probably one of the best times you’ll ever get to invest in this coin.
Crypto #3: Dogecoin (CCC: DOGE)
Did you know that Dogecoin was started as a joke to make fun of the crypto craze?
Today, however, it’s one of the most famous and widely-used cryptos around. Why?
Well, it doesn’t have any special infrastructure or grand vision.
There’s no limit to the number of Dogecoins that can be mined, unlike the ceilings most cryptocurrencies have in place.
And with the attention of the Dogefather — Elon Musk — Dogecoin is now the seventh-largest crypto by market cap at around $1 billion in value.
Yet Dogecoin doesn’t actually have much going for it besides fame.
But in the early years at least, fame can be enough. It can start the snowball rolling. And Dogecoin might just be big enough that, joke or not, it will continue attracting followers and investors.
It’s highly likely that Dogecoin will wind up a funny footnote in the story of cryptocurrencies. But that doesn’t mean you can’t make a lot of money in the meantime. It’s certainly worth a bet — if for no other reason than to prevent you from kicking yourself when the only non-bitcoin crypto your parents have heard of keeps going up.
Crypto #4: Cardano (CCC: ADA)
Cardano operates on a proof-of-stake basis.
Think of proof-of-stake this way: Most cryptos behave like a checkout clerk who’s constantly counting all the bills in the till, all the time, backwards and forwards.
Proof-of-stake acts like a checkout clerk that only counts bills when there’s a transaction.
Sounds logical enough, right?
It leads to enormous energy savings, too.
To give you an idea, Ethereum is transitioning to a proof-of-stake system… and estimates that it will require only 1/10,000th of the energy currently needed.
That’s a big difference.
And while Ethereum is now encroaching on Cardano’s turf, Cardano has first-mover advantage and has done it best so far.
What’s more, as energy consumption has become one of the bigger knocks on cryptos, Cardano has gained popularity.
It’s now the fifth-largest crypto by market cap – up over 1,000% in the past year.
However, it’s still only a little over $1 per coin — there’s plenty of room left to run.
Odds are, either Ethereum or Cardano will wind up the winner of the proof-of-stake stakes.
But which one?
Better have both to cover your bases. Even if one goes to zero, the other should gain more than enough to keep you in the black.
Crypto #5: Cosmos (CCC: ATOM)
Cosmos dreams on a grand scale.
It’s created an ecosystem of blockchains, which can all use different rules, but also communicate between themselves and offer interoperability.
The stated purpose of Cosmos is to create an internet of blockchains. That’s a huge undertaking.
If successful, Cosmos may end up creating the infrastructure that all other cryptos (and other types of blockchains) work on.
If Cosmos’ bet pays off, everything blockchain could just be a subset of ATOM in future.
But creating that infrastructure isn’t cheap. Which is why owning Cosmos comes with a bonus.
You can “stake” your ATOM coins — i.e., lend them out — to pay for creating that infrastructure.
And in return, you’ll receive a 5% yield on your ATOM coins, paid out in ATOMs.
Think of this as the crypto equivalent of a dividend.
Cosmos isn’t the only crypto with a yield like this. For example, Ethereum pays 5%, too, so it can borrow enough Ethereum to switch to the proof-of-stake system.
But this is still a relatively new twist, and Cosmos is one of the few cryptos that pays a high enough yield to attract attention.
That rate won’t be around forever, though. The infrastructure will be built at some point, so we should take advantage while we can.
Action to Take: Create a multi-cryptocurrency portfolio, with equal investments in each.
To start, we recommend Bitcoin (CCC: BTC), Ethereum (CCC: ETH), Litecoin (CCC: LTC), Ripple (CCC: XRP), Dogecoin (CCC: DOGE), Cardano (CCC: ADA), and Cosmos (ATOM).
Please keep in mind that these are all among the most speculative investments you can make, so don’t invest money you can’t afford to lose. And don’t invest money you’ll need within the next 1-5 years.
The cryptocurrency market will remain extremely volatile for the foreseeable future — with many ups and downs along the way. It will stabilize at some point, most likely at a much higher price point. But it’s tough to say what any coin’s price will be in six months.
If you want to reduce your risk, you can use one of our favorite tricks: Watch the markets closely, and when your position is up over 100%, sell half. That way, you guarantee you won’t lose money. You can let the remaining half ride and if it goes to zero, no harm done. But if it keeps shooting to the moon… well, half a fortune is still a fortune.
