What are the 5 best digital currencies?

After Bitcoin’s dizzying rise to a record US$40,000 in January 2021, digital currencies or cryptocurrencies are starting to capture public attention.

From around US$7,000 at January 2020, Bitcoin rose to about US$30,000 by December 2020, shot up to a new record of above US$40,000 in January 2021 and is now hovering around US$32,000. In comparison, the hottest stock of 2020, Tesla rose from around US$100 to above US$700 from January 2020 to December 2020, while the S&P 500 only returned around 15% in the same period. With such gains, there’s little wonder why even the man on the street is talking about Bitcoin (and Tesla).

Before we delve deeper into cryptocurrencies, do familiarise yourself with what they are with our cryptocurrency primer. In essence, cryptocurrencies are digital currencies where transactions are stored on a digital ledger (blockchain). This may be a gross simplification and various cryptocurrencies have features that differentiate them from one another.

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If you believe in cryptocurrencies as an alternative asset class and want to diversify beyond Bitcoin, there are plenty of choices. Here are 5 prominent digital currencies or altcoins you can consider investing in.

#1 Ethereum (ETH)

Ethereum (ETH) is the second largest cryptocurrency by market capitalisation. Often listed on the same exchanges and gaining as much institutional attention as Bitcoin (BTC), Ethereum has been steadily on the rise. Ethereum started 2020 around US$130 and ended the year at around US$750, a gain of over 550%. However, in just the few weeks of January 2021, it has since almost doubled from $730 to cross its record peak of US$1,400 and is hovering around US$1,350.

Since the cryptocurrency rush in 2017/2018 to today, Ethereum has held its own and solidified its position as the second most prominent digital currency. Unlike Bitcoin which has acted as a store of value similar to gold, Ethereum has the ability to create and hold smart contracts. Smart contracts allow transactions to take place without a third party or central authority. Imagine buying a property without the involvement of an agent, lawyer or the government. This is theoretically possible with a smart contract.

Price on 1 January 2020: US$130

Price on 31 December 2020: US$752

Performance in 2020: 580%.

#2 Tether (USDT)

The third largest cryptocurrency by market capitalisation is Tether.

What makes Tether different is that it is a stablecoin that is pegged to the US Dollar. This means that unlike other crypto tokens which can fluctuate dramatically in price, one tether token is usually worth US$1. This allows Tether to be used as a medium of exchange and a mode of storage of value, especially in the volatile world of cryptocurrencies.

Performance in 2020: not applicable because USDT is pegged to US dollar.

#3 Polkadot (DOT)

Polkadot or DOT is the current 4th largest cryptocurrency, according to CoinMarketCap. Polkadot was only listed on the major cryptocurrency exchanges such as Binance, Bifinex and Kraken around end-August 2020. Since its listing, it has risen to above US$9 by the end of 2020, and hit a peak of US$20 in January 2021. Polkadot is currently about US$17.28, double its value from the start of the year.

Price on first listing 21 Aug 2020: US$3.11

Price on 31 December 2020: US$9.28

Performance in 2020: 300%.

#4 Chainlink (LINK)

Chainlink really took off in 2020. While it has been listed on some of the major cryptocurrency exchanges such as Kraken and Coinbase before 2020, its price has risen from US$1.80 to US$11.25 in 2020. Since the start of 2021, Chainlink has doubled to US$23.10. It is currently the 7th ranked cryptocurrency by market capitalisation.

Price on 1 January 2020: US$1.80

Price on 31 December 2020: US$11.25

Performance in 2020: 625%.

#5 Bitcoin Cash (BCH)

Bitcoin Cash is an example of cryptocurrencies that originate from a hard fork or split from an originating cryptocurrency. In this case, Bitcoin Cash was created from a hard fork from Bitcoin in August 2017.

The reason for a hard fork is typically ideological whereby the developers have differing solutions to solve the challenges of the cryptocurrency. For Bitcoin Cash, the issue was how to scale Bitcoin transactions to accommodate the growing volume. There can be multiple hard forks for a cryptocurrency with each hard fork leading to the creation of a new cryptocurrency. Bitcoin itself has had several hard forks with Bitcoin Cash and Bitcoin Gold being more prominent and widely used variants. Other variants such as Bitcoin XT, Bitcoin Classic or Bitcoin Unlimited have largely fallen out of favour.

Price on 1 January 2020: US$203

Price on 31 December 2020: US$343

Performance in 2020: 170%.