Beginner's guide to blue-chip crypto
The crypto market is still in adolescence. As of December 2022, there are nearly 22,000 cryptocurrencies in existence, but only a few of them fit the description of blue chips. This class of digital assets has relatively solid fundamental value and superior stability compared to other tokens and coins. Learn the fundamentals of blue-chip crypto investing in our guide.
Blue-chip assets in crypto space
Many investors regard Bitcoin, Ether, and some other well-established cryptocurrencies as blue-chip crypto. This term originated in poker, which appeared in the 19th century USA. On a poker table, blue-colored chips always represent the highest cash value of bids compared to white or red chips.
In the 1920s, the term blue chip was borrowed by stockbrokers. In 1923, Oliver Gingold, a Dow Jones employee, coined it in reference to stocks priced at $200 or more per share. Today, the blue-chip tag defines stocks of established, financially sound companies that have withstood the test of time. In the crypto domain, this asset class has similar characteristics, such as:
- Solid reputation
- Significant market capitalization
- Institutional status
- Superior liquidity
- Lower volatility
Blue-chip crypto vs. blue-chip stocks
In traditional finance, there is no market cap threshold for the blue-chip stocks, although $5 billion is a generally accepted benchmark. Such equities are part of leading indices — hypothetical portfolios whose market performance reflects combined financial results. In the US, these include:
- Dow Jones Industrial Average (30 prominent companies listed on US exchanges, including Coca-Cola, Intel, and McDonald's)
- S&P 500 (500 large companies listed on US exchanges, including Apple, Tesla, and Alphabet)
- NASDAQ Composite Index (stocks of over 3,700 companies listed on the NASDAQ stock exchange, such as Amazon, Nvidia, and Meta Platforms)
In the UK, blue chips are associated with the FTSE series indices like FTSE 100. This index traces the shares of 100 market cap leaders on the London Stock Exchange.
By virtue of their reputation, prominence, and reliable cash flow, blue-chip companies are generally associated with lower risk and volatility. Therefore, they represent safe haven assets. However, although volatility varies, there is no such thing as absolutely safe investments. Aside from foreseeable events, the financial markets have seen multiple black swans like the implosion of Enron or the 2008 global financial meltdown.
Blue chips in the crypto world
Blue-chip cryptos have the biggest appeal for risk-averse investors. Compared to other types of cryptocurrency, they offer the following benefits.
Well-established and reputable
These cryptocurrencies have been around for years and show resilience to adverse market conditions. Bitcoin, the largest cryptocurrency and pioneering blockchain, has set the gold standard for the crypto market. The Ethereum network has only recently abandoned Proof of Work, the consensus model behind BTC mining.
Issuers of blue-chip stocks have a reputation for reliability, resilience, and high quality of services and products. By the same token, BTC and ETH have solid reputations within the investor community and the biggest market dominance. In 2021, the number of crypto users worldwide exceeded 300 million.
Adopted by institutions
Of all cryptos, BTC enjoys the broadest support of institutional investors. It is now found on corporate balance sheets, including Grayscale Trust ETFs. In 2021, Tesla purchased $1.5 billion worth of BTC to adopt it as a payment method. Meanwhile, the Ether community expects the 2022 Merge update to spur institutional interest.
Boasting a large market cap
Typically, the capitalization of blue-chip cryptos, as well as stocks, starts from $5 billion. Currently, BTC and ETH are far ahead with around $326 billion and $154 billion, respectively.
Blue chips, both cryptos and stocks, let traders open and close positions easily as the markets are flush with liquidity. Every day, crypto holders move billions of BTC, so finding a counterparty for a trade is possible 24/7.
Users can move funds between exchanges, and receive or send Bitcoin and Ether between wallets quickly and easily. High interchangeability drives adoption as direct exchange eliminates the need for intermediary assets.
BTC and ETH tend to move less than other cryptocurrencies. In October 2022, some experts claimed BTC volatility had hit a historical low, making the coin more stable than US stocks.
Examples of blue-chip crypto market assets
Both Bitcoin and Ethereum have been around longer than most other blockchains. Their native coins have weathered multiple bear markets, including the latest downturn triggered by Terra's collapse. Thus, despite a shorter track record compared to equities, they have the reputation of financially stable assets. Here are the true blue chips of the crypto world.
Bitcoin is the king of blue-chip coins with a first-mover advantage. This pioneering cryptocurrency is supported by robust blockchain technology, and adoption is growing rapidly. This year, BTC's price movements have been increasingly correlated with stocks and macro drivers like the Fed's interest rate hikes. Yet BTC is still volatile.
- BTC has been around since 2009 – for nearly 15 years. First described in the white paper 'Peer-to-Peer Electronic Cash System' by Satoshi Nakomoto, it has spearheaded the crypto revolution and decentralized finance.
- Bitcoin has introduced the world to the notion of a decentralized economy based on Proof of Work (PoW).
- The total circulating supply is capped at 21 million coins, and minting is due to finish around 2140. Bitcoin halvings slash mining rewards roughly every four years, exerting deflationary pressure on the BTC price.
- The number of Bitcoin active addresses is around 900,000 as of December 2, 2022, and the growth trajectory mirrors the pace of internet adoption in the 1990s.
- Bitcoin dominance, a gauge comparing its market cap to that of all cryptos, currently stands at 43%. As of December 2, 2022, the BTC market cap is around $326.6 billion.
The 2022 bear market has pushed BTC to $16,964.54; the coin is 75.4% below the peak value ($69,045 on November 10, 2021), but nearly 24,919.8% above the lowest point since hitting the market. On July 6, 2013, it was worth just $67.81 per CoinGecko. The 24-hour total trading volume as of December 2, 2022, is $22,590,222,094.
This crypto blue chip powers Ethereum, a pioneering platform for smart contracts. It emerged in 2015, seven years later than Bitcoin, and has grown into the most active and robust DeFi blockchain.
- The Ether coin has the second-largest market cap (around $154.3 billion) corresponding to 19.31% dominance.
- Ethereum smart contracts are the bedrock of decentralized projects and DeFi platforms. This network also powers the global market of NFTs (non-fungible tokens) and supports the majority of altcoins.
- Ethereum is the biggest platform for Dapps (decentralized applications). According to DappRadar, 3588 decentralized apps are currently running on Ethereum — mainly, games, DeFi apps like MetaMask Swap, and exchanges like Uniswap.
- The Ethereum blockchain is continuously improving and evolving. On September 15, it underwent a watershed upgrade — the Merge — designed to make it 99.9% more sustainable with enhanced scalability. The issue of high gas fees — blockchain transaction fees — is expected to be resolved by the Shanghai update.
- The number of Ethereum daily active addresses is just under 400,000 as of December 2, 2022.
- The circulating supply, currently at 120.52 million ETH, is unlimited. However, it is due to shrink following Triple Halving, a post-Merge process including burning, reduced issuance, and staked ETH. According to Cointelegraph, ETH has already become deflationary.
At press time, the coin is trading at $1,277.89, 73.8% below its all-time high of $4,878.26 on November 10, 2021. At the same time, it is 295,060% above the all-time low of $0.432979 on October 20, 2015. The daily total trading volume as of December 2, 2022, is $5,886,629,581.
Other cryptocurrencies with blue-chip status
It is debatable whether BNB and XRP match the definition of a blue-chip crypto asset — some investors call them lower-tier blue chips instead. However, they are closely following the market leaders, and have a track record of recovering from market shocks.
Binance Coin (BNB)
Formerly known as Binance Coin, BNB appeared in 2017 during Binance's ICO. Initially an ERC-20 token, it migrated from Ethereum to the proprietary Binance Chain, now part of BNB Chain, in 2019. Today, BNB supports a diverse ecosystem of crypto services, including the Binance CEX, DEX, and lending options.
- Native to the largest crypto exchange, BNB has climbed to the fourth position by market cap, currently at just over $47 billion.
- Like Bitcoin, BNB has a fixed supply of 200 million BNB, with 50% divided between the founders and angel investors. The current circulating supply of under $160 million BNB is a result of the burning process as a deflationary mechanism.
- The use cases include numerous applications, including entertainment, travel bookings, and financial services. On Binance, BNB holders get discounts on trading fees of up to 25%.
- The number of BNB daily active addresses is unavailable, but Binance had 28.6 million annual users in 2021.
At press time, BNB is trading at $289.96, 57.8% below the peak of $686.31 on May 10, 2021, but $727,868% above the all-time low of $0.03981770 on October 19, 2017. The daily total trading volume as of December 2, 2022, is $1,471,364,943.
The Ripple blockchain, which emerged in 2012, initially targeted instant money transfers. Although it was eclipsed by other crypto projects, XRP is still a prominent digital token.
- Ripple is a blockchain-based network for digital payments with a proprietary protocol and native cryptocurrency. It was designed to be used by banks.
- Compared to Bitcoin, Ripple offers more sustainable, faster, and cheaper transactions.
- XRP is the seventh cryptocurrency by market cap (just under $20 billion at press time).
- The total circulating supply is limited to 100 billion XRP, which makes it a deflationary token. Around 45.7 billion XRP are currently held in an escrow account, and around 5.6 billion are held by Ripple.
- Since 2020, Ripple Labs has been embroiled in a legal battle with the US Securities and Exchange Commission (SEC) on the subject of alleged securities laws violations. The developments in the case have affected the price of XRP.
- According to Messari, the daily active address count is over 4.3 million.
As of this writing, the XRP token is changing hands at $0.392451, 88.4% below the highest value of $3.40 on January 7, 2018, and $14,552.6% above the lowest point of $0.00268621 on May 22, 2014. The 24-hour trading volume, according to CoinGecko, is $917,360,560.
Some caveats of investing in blue-chip cryptocurrencies
When financial markets turn south, investors flock to assets known for steady returns. However, even the status of a safe stock is controversial – many investors would define safety as the unlikelihood of permanent investment loss. In crypto, blue chips are marked by superior past performance, but they cannot escape the market’s inherent volatility.
Neither prominence nor reputation guarantees future results. Traders, as well as institutional investors, should always do their own due diligence and keep track of industry news. "Don't put all your eggs in one basket" is timeless investment advice that works for crypto as well as all other markets.