There are somewhere in the region of 4,000 cryptocurrencies to invest in, each representing a different blockchain project. When investment experts look at the array available, they don’t base their choice on price, they look at the utility.
When the exeperts talk about Utility, they are referring to digital tokens built on a specific blockchain ecosystem – most often based on Ethereum’s ERC-20 standard – which grants token holders certain rights. As Katharine Wooller, UK and Ireland managing director at crypto wealth-building platform Dacxi told Rich McEachran, “Any cryptocurrency is only as good as its use case.”
There is a tendency amongst investors to buy Bitcoin simply because it is the most famous cryptocurrency. But Bitcoin’s utility is limited to promoting financial inclusion and cross border payments. Ethereum on the other hand is the preferred ecosystem for building cryptocurrency projects. So, it is not hard to figure out which of the two has more long-term potential.
One of the issues facing investors, particularly retail investors, is that the digital assets they hear the most about and are therefore drawn to, are the “cryptocurrencies addressing or solving specific problems on a macro level,” says Roman Matkovskyy, an associate professor in finance and accounting at Rennes School of Business. But there are many, many more that offer solutions to more ‘micro’ questions. As Wooller says, “it’s essential to do your homework and spend time researching and analysing a coin’s long-term intended use,” usually via the project’s white paper that should be freely available online.
Of course, a coin may appear to have great utility, but that doesn’t guarantee it will be successful. What is required for that to occur, is demand for the coin’s ecosystem. Let’s not forget that there are over 2000 coins that have come and gone, their related projects dead due to lack of demand.
The meme coins, such as Dogecoin, are a good example of complete lack of utility. Yet, investors have poured money into them, resulting in a 12,000% gain for DOGE between January and May 2021. They may look good right now, but they won’t last, as they serve no purpose. Dogecoin was started as a joke, and that should really tell you all you need to know. Still, people buy DOGE because they hope for its value to skyrocket. It’s speculation rather than investment.
Where should you look for long-term investments?
For long-term gains based on utility rather than making a quick profit, experts point to Ethereum (ETH) as the top choice, because it provides a platform for developers to create apps and run them on a blockchain without the involvement of third parties.
Paddy Osborn, managing director of the London Academy of Trading, suggests three others with potential: Polkadot – a network that can support multiple different blockchains and enable them to work together; Internet Computer, which aims to disrupt the internet space by building a decentralised web platform that runs on a blockchain and vechain, which helps companies track their products safely and securely through each stage of the supply chain.
To conclude, nothing is certain, but if you’re looking for a solid, long-term investment, look for the cryptos that are showing the greatest level of user adoption and functionality.