Bitcoin is the first and the most famous cryptocurrency among more than 2000 cryptocurrencies available for purchase today.
Created in 2009, Bitcoin has been the pioneer of the new-born crypto market and early holders have benefited from an impressive rally in Bitcoin’s price.
Undoubtedly, Bitcoin is the most popular and the most trusted cryptocurrency in the market. All crypto-exchanges offer the possibility to trade spot Bitcoin.
Furthermore, most cryptocurrencies are quoted in Bitcoins, therefore Bitcoin fulfills the role of a base currency in the crypto market.
More interestingly, Bitcoin is also available on conventional futures market. Bitcoin futures could be traded on CME and CBOE (Chicago Board Options Exchange).
Although the main purpose of crypto-trading is to enhance holdings in terms of Bitcoins, it is possible and recommended to diversify investments across cryptocurrencies to decrease the volatility and temper risks of a portfolio.
In this respect, some of the major rivals of Bitcoin offer interesting alternatives for traders.
Bitcoin Cash (BHC)
By construction, Bitcoin transactions are included on a blockchain and the set of rules by which the memory of transactions move is determined by the miners themselves.
If some miners would like to change the rules, they need to fork it. As such, a group of miners decided to apply different rules to validate a transaction by mid-2017. It gave birth to Bitcoin Cash in August 2017.
Bitcoin Cash was designed to increase the Bitcoin’s capacity crunch by larger blocks, allowing more transactions to be processed. As such, BHC is more adopted for investors favoring transactions, compared with Bitcoin, which could be preferred for digital investment.
Ether is the second largest cryptocurrency after Bitcoin in terms of market capitalization; it is generated on Ethereum platform.
As Bitcoin, Ether is based on blockchain technology and provides a public distributed ledger for transactions.
What makes Ether more appealing is the possibility to run numerous computer applications on it, such as a file-storing application, and its ‘smart contract’ functionality, which is a scripting language.
In addition, Ether accounts are pseudonymous, hence provide more privacy to its users.
Also, for users who are willing to make more transactions, Ether is a better alternative than bitcoin. As a comparison, Ether’s blockchain time, time needed to complete a transaction, is about 15 seconds, versus around 10 minutes for Bitcoin and Bitcoin Cash.
Litecoin is the fifth largest cryptocurrency in terms of market capitalization. It has been inspired by Bitcoin. But it has several technical differences compared to Bitcoin.
Litecoin offers its users faster transactions (block time of 2.5 minutes), higher maximum number of coins and a slightly different graphical user interface (GUI).
Litecoin is referred to as ‘silver’ in comparison to Bitcoin’s gold.
As all cryptocurrencies, Ripple offers a blockchain solution for global payments.
But among major cryptocurrencies, Ripple is the one that faces the biggest controversies, especially from the community of purists, because Ripple is a privately-owned company, hence it is no longer decentralized.
Ripple’s network consists of participating financial institutions. An advantage could be the Ripple’s compliance with the existing financial system. This feature could help Ripple to evolve in a different direction in the future.
It is important to remember that Ripple differs fundamentally from other cryptocurrencies, which aim to replace the actual financial system by spreading the power to a community of users, leaving central banks and financial institutions behind.
Although the correlation among cryptocurrencies remain high due to a relatively elevated systemic risk, a diversified portfolio tempers the impact of daily price swings.
As the market becomes more established, the benefits of diversifications will be crucial for a proficient management of mid-to-long term risks.
This report has been prepared by Swissquote Bank Ltd and is solely been published for informational purposes and is not to be construed as a solicitation or an offer to buy or sell any currency or any other financial instrument. Views expressed in this report may be subject to change without prior notice and may differ or be contrary to opinions expressed by Swissquote Bank Ltd personnel at any given time. Swissquote Bank Ltd is under no obligation to update or keep current the information herein, the report should not be regarded by recipients as a substitute for the exercise of their own judgment.