Cryptocurrencies reached unprecedented heights in April and May: the leaders of this asset class — Bitcoin and Ethereum — jumped above $65,000 and $4,400 per token, respectively. Other cryptocurrencies, even those that were created for the sake of a joke, such as Dogecoin, also demonstrated an incredible, parabolic rally that enriched the visionary lucky ones who at one time added a couple of tokens to their digital wallet.
Nothing stimulates market activity like an aggressive bull market. After the rise of bitcoin, ether and other assets, thousands of new digital currencies flooded the market. Although many of them have unique properties in terms of application, their growth and popularity are primarily due to the fact that they give investors and traders the opportunity to earn as much money as they never even dreamed of.
In my lifetime, I find it difficult to remember other investments such as bitcoin, having invested $ 10 in which at one time, it was possible to earn more than $ 10 million. It’s like hitting the jackpot in the lottery. Therefore, market participants continue to mine and buy cryptocurrencies, which may eventually turn out to be uncut diamonds and help them earn a fortune in the coming weeks, months and years. Most cryptocurrencies will only gather dust in digital wallets. Digital currencies of the 1st echelon with a high market capitalization provide sufficient liquidity for traders and therefore are likely to survive. The top 35 cryptocurrencies include Kusama (KSM) and Algorand (ALGO). This exclusive club unites only about one third of 1% of all digital currencies.
The leaders are closer to recent lows than to highs
The head of Tesla (NASDAQ:TSLA), Elon Musk, undoubtedly caused the sale of bitcoin with his tweets when he said that the company would stop accepting this cryptocurrency for environmental reasons. However, the parabolic rally of the sector leaders was stopped by the ban on the use of digital currencies in China, which is now working on creating a digital yuan.
The weekly chart reflects the growth of bitcoin to a maximum of $65,520 at auction on April 14, when Coinbase (COIN) was listed on the NASDAQ exchange. Purchases stopped, and Musk, along with China, helped to collapse prices to a minimum of $30,205 in mid-May. At the June 9 session, bitcoin was trading around $36,400, remaining closer to the lows since mid-April than to the highs.
Ether futures peaked at $4,406.25 per token in the week beginning May 10. Two weeks later, the quotes fell to a low of $2,062. At the June 9 session, ether was trading below $2,600, being, like bitcoin, closer to the lows than to the recent record high.
The number of new cryptocurrencies continues to grow
I started tracking the number of cryptocurrencies in the 1st quarter of 2019, when there were a total of 2,136. By the end of 2019, their number had more than doubled, reaching 4,986. At the end of last year, it was already 8,513. If you believe the data from CoinMarketCap, then at the time of writing the number of cryptocurrencies was 10,350. By the time you read this article, there will be even more of them.
The total market capitalization of the cryptocurrency sector reached almost $2.5 trillion in April-early May, when bitcoin and ether rose to record highs. As a result of the correction by June 9, this figure fell below $1.6 trillion. For comparison, the world’s largest corporation in terms of capitalization is Apple (NASDAQ:AAPL): its market value reaches $2,122 trillion. From this we can conclude that cryptocurrencies remain a relatively small asset class, although there are more and more of them. Newly emerging cryptocurrencies satisfy the interest of speculative market participants. Like new lottery tickets, they stimulate purchases.
Trading and investing are not the same thing. In the world of cryptocurrencies, it is extremely important to draw this boundary. Investments are passive in nature: speculators buy bitcoins, ethers and other cryptocurrencies and keep them on platforms or in digital wallets in the hope of earning. Trading involves buying and selling cryptocurrencies in order to make a profit, and this depends on liquidity, which creates tight spreads and ensures the effective execution of buy and sell orders. Only a few of the cryptocurrencies offer liquidity levels sufficient to attract traders.
Kusama is the 29th line in the list of leading cryptocurrencies
As of June 9, Kusama was ranked 29th in the list of leading cryptocurrencies with a market capitalization of $3.937 billion and a price of $466 dollars per token. Kusama is a scalable network of specialized blockchains based on Substrate. The source code base of this currency is almost the same as that of Polkadot (DOT), which occupies the 9th line in the list of leading digital currencies with a market capitalization of $21.4 billion. Substrate is a modular system that allows developers to create blockchains for various purposes by using customized or pre—created components, or using a library that allows you to build customized block chains. More information about Kusama can be found on this website.
As you can see on the chart, Kusama has grown from levels below $2 per token, where it was trading at the end of 2019, to a maximum of almost $600, recorded in May 2021. Kusama is another success story for investors who managed to invest in cryptocurrencies early. The daily trading volume of $678.5 million provides sufficient liquidity for sellers and buyers.
Algorithand is the 34th line in the list of leading cryptocurrencies
On the 34th line of the “hit parade” of cryptocurrencies is located Algorithand (ALGO), whose market capitalization reaches $3,275 billion at a price of $ 1.07 per token. The public version of Algorithand is a decentralized blockchain platform that allows developers to create new applications based on cryptocurrencies applicable in areas such as real estate, copyright and microfinance. The protocol, vision and mission are described in detail on the platform’s website.
As the graph shows, the Algorand has gone a bumpy way. This cryptocurrency started trading in June 2019 at $2,159, then it fell below 15 cents in March 2020 and reached a series of lower highs in 2021. At the June 9 session, the Algorithand was trading at $1.07, in the middle of a long-term trading range. The trading volume that day was about $405 million.
Risk only what you can lose
The best thing to advise when buying any cryptocurrencies, from the most liquid to the most illiquid, is to risk only what you are willing to lose. The high level of volatility and uncertainty regarding regulation and government intervention make investing in this asset class a dangerous occupation.
The situation is different with trading, because in this case, liquidity plays a decisive role. Trading requires execution of buy and sell orders with narrow spreads. The higher the market capitalization, the more liquidity there is for traders opening and closing risky positions in the cryptocurrency sector.