In traditional finance, “blue-chip” refers to a company that is widely recognized as a high-performer for a long period of time. It’s a direct analogy to when poker chips were blue, red and white, with blue chips being the most valuable. Blue-chip stocks have stood the test of time, have withstood bear markets and downturns, and are considered financially stable and productive over time.
Although volatility is an inevitable part of any long-term investment strategy, blue-chip stocks are considered less volatile due to their institutional nature.
The brand is reliable and widely used, the market cap is often as low as $5 billion dollars and they are often included in major indices such as the S&P500. At present, the main S&P 500 allocations are names you no doubt know: Facebook, Apple, Amazon, Microsoft, Alphabet and Tesla. All of the above is widely used and has obvious utility in the world.
How do we define “blue-chip” in Crypto?
Defining what is “blue-chip” in crypto can be a much bigger challenge due to the innovative and unique nature of the industry itself. Let’s start by taking a look at the current market capitalizations in USD.
What you are looking at above are the top 5 cryptocurrencies by market capitalization. We can also look at the spot price, but this is less interesting for those who simply want HODL and probably does not dictate longevity. We unpack each of these coins.
What are “blue-chip” cryptocurrencies?
The obvious blue-chip cryptocurrency is bitcoin. Bitcoin is a robust digital store of value created by the anonymous Satoshi Nakomoto in 2009 and was first described by the creators as a “peer-to-peer electronic cash system”. Bitcoin was the worldwide introduction to a truly decentralized financial system that uses an innovative Proof-of-Work (PoW) mining and consensus system.
It has a finite and predetermined high of 21 million bitcoins, with the final coin minted around the year 2140. Bitcoin’s market capitalization is extremely significant in any financial environment, currently boasting a size of about 1/10 of the entire gold market. It has hundreds of millions of users and is on the same growth trajectory as the Internet itself in the late 1990s.
Although some who doubt the legitimacy of bitcoin will indicate its short-term volatility, on a fairly long time scale its direction is singular: upwards and rightwards. When we use the word “blue-chip” we are looking for that track record and performance over time. With recent developments such as the lighting network (a layer 2 bitcoin protocol) and taproot (its most recent software update) we will try to see if bitcoin supports its incredible growth path.
Performance over time is, in many ways, what makes cryptocurrency and DeFi so difficult to measure here and now. We’ve seen pump-and-dumps of epic proportions and coins that don’t have a real-world value proposition or even use case.
This, of course, is not true for the entire DeFi space. DeFi continues to prove its legitimacy as more and more users give up the traditional closed financial system in favor of open peer-to-peer protocols.
The most robust and active DeFi blockchain to date is ethereum. Ethereum has only been active for six years, and its impressive run since 2015 has made us ask some obvious questions about what’s next. Ethereum is responsible for the explosive rise of the NFT market, and its main token, ETH, is the second largest cryptocurrency by market capitalization.
Ethereum has millions of dedicated users and is currently leading the DeFi space by a mile, but there are elements of the project that we will look closely at going forward. It is “upgrade” to Proof-of-Stake (PoS), lowering transaction fees, improving transaction speed and watching the rise of its main token that will take into account that Ethereum will remain a blue-chip cryptocurrency.
Binance coin is the main token of the largest cryptocurrency exchange by total daily trading volume, Binance. Even more recent than bitcoin or ethereum, there has only been one market for Binance Coin since 2017. As all ambitious exchange projects propose to do, Binance wants to bring cryptocurrency investing and trading to the forefront of our new financial reality.
Binance harnesses the incredible power of Web3 composability for its users. There is a solid blockchain, reliable wallets, and even Binance Academy for those who want to learn more about cryptocurrency. It can be difficult to validate the robustness of a cryptocurrency’s main blockchain token, but the success of Binance Coin has been at the heart of Binance’s many initiatives in the space, creating a positive feedback loop for users.
We’ll try to see if Binance Coin (and Binance itself) can stand the test of time.
In November 2017, Anatoly Yakovenko published Solana’s white paper that outlined the creation of a “Proof of History (POH)” blockchain whose goal is to become the “fastest blockchain in the world”. At its core, they would use a new method to keep time between network validators. In combination with Proof of Stake (POS), and as long as validators can all agree on time, transaction processing becomes, in theory, very fast.
The creators of Solana have the ambition to become the blockchain with the highest throughput in the world while maintaining low costs. Easier said than done, as most blockchains tend to have higher fees as more and more transactions are processed through the network. As usage on other major blockchains, such as Ethereum, continues to increase, transaction times and fees go hand in hand. The creators of Solana claim that this limits their potential and affects scalability and believe they have created a solution that makes them “the fastest growing ecosystem in crypto”.
In April 2020, Solana’s main token, SOL, was introduced to the market and quickly rose to prominence.
Although Solana has enjoyed an incredible rise, becoming Ethereum’s obvious competitor, he has high ambitions and time will tell if they will take place. Solana doesn’t just want to power DeFi transactions, it wants to be the most powerful blockchain in the space for decentralized dApps, NFTs, DAOs, and social media.