Although bitcoin has surged to more than US$107,000, investment experts warn that not all altcoins will be winners.DADO RUVIC/Reuters
Altcoins – those alternative cryptocurrencies to bitcoin – are gaining traction as more asset managers build exchange-traded funds around them.
For example, ETFs focused on XRP, the crypto asset of the XRP ledger, recently listed in Canada, joining their ether and solana cousins. These include Purpose XRP ETF XRPP.B-T, Evolve XRP ETF XRP-T and 3iQ XRP ETF XRPQ-T. In the U.S., where ether and solana ETFs are now trading, a tsunami of bitcoin alternatives awaits regulatory approval.
Although bitcoin has surged to more than US$108,000, investment experts warn that not all altcoins will be winners, and it pays to bone up on the blockchain technology behind the many tokens.
“The crypto space is gaining more acceptance and credibility,” says Michael Zagari, investment advisor and associate portfolio manager at Wellington-Altus Private Wealth Inc. in Montreal.
But digital assets will likely follow the trajectory of the dot-com bubble, which burst in early 2000, leaving only a few dominant technology players after industry consolidation, Mr. Zagari says.
“I think what happens to the blockchains is that it eventually will go from some 10,000 to maybe 10 top altcoins.”
Like bitcoin, altcoins refer to crypto assets used on blockchains, which are decentralized, digital ledgers that record transactions securely and transparently. Altcoins also include meme coins, as well as stablecoins, which are often pegged to the U.S. dollar.
Bitcoin is sometimes seen as digital gold. Ether is the currency of the Ethereum blockchain, which runs smart contracts; solana, its competitor, offers faster and cheaper transactions. And XRP allows for fast and cheap cross-border payments.
Besides ETFs, investors can also get exposure to digital assets through stocks, such as Neptune Digital Assets Corp. NDA-X, which owns different tokens, and Spetz Inc. SPTZ-CN, whose sonic blockchain is also making waves in the gaming industry, he says.
But blockchain knowledge is still in its infancy, and investors often buy crypto assets on speculation rather than doing their homework or consulting with an advisor who knows the sector, Mr. Zagari says.
Altcoins can also be very volatile in times of geopolitical risk, such as when the U.S. bombed Iranian nuclear sites on June 21, he says. “The value of altcoins dropped by 7 to 10 per cent the next day” before rebounding.
Mr. Zagari says he is bullish on bitcoin, ether and solana. After solana ETFs listed in Canada in April, he bought Purpose Solana ETF SOLL.B-T for himself and recommended it to clients.
For his aggressive investors, he may suggest 15 to 20 per cent of their equity allocation to cryptocurrencies through ETFs and related stocks. And for his balanced portfolio clients, he may recommend up to 5 per cent exposure.
Cryptocurrencies have garnered attention since U.S. President Donald Trump promised to make the U.S. “the crypto capital of the world,” and signed an executive order in March to create a strategic bitcoin and digital asset reserve.
Two crypto bills are moving through U.S. Congress. In June, the Senate passed the GENIUS Act – short for Guiding and Establishing National Innovation for U.S. Stablecoins Act – to set up a regulatory framework for stablecoin issuers. The bill, which passed with bipartisan support, needs approval from the House of Representatives.
And the Clarity Act, short for the Digital Asset Market Clarity Act, aims to establish a regulatory framework for digital assets. It still needs the green light from Congress’s two chambers.
U.S. ETF providers, meanwhile, are waiting to get approval for a host of altcoin ETFs, including for solana, litecoin, cardano, polkadot, avalanche and even dogecoin, a meme token that started as a joke.
If the crypto-focused regulations are approved, that will spark more interest in digital assets and bring more institutional investors into this space, Mr. Zagari says.
Alex Tapscott, portfolio manager and managing director of the digital asset group at Ninepoint Partners LP in Toronto, says the U.S. crypto legislation will help create much-needed rules for the industry.
A clear regulatory framework should also spur more crypto-focused firms to go public, says Mr. Tapscott, who oversees Ninepoint Crypto and AI Leaders ETF TKN-T.
Shares of Circle Internet Group Inc. CRCL-N, issuer of the USDC stablecoin, had a huge rally after the Senate passed the stablecoin bill, he notes. Its stock surged to US$299 a share after going public at US$31 on June 5. It has since pulled back to around US$188.
Investors may see altcoins as competing against bitcoin, the largest cryptocurrency, but that’s not so, he says. “Many of these [altcoin] assets are very different in what they do, and why they have value.”
The Ninepoint fund has about 30 per cent invested in five crypto ETFs, including CI Galaxy Bitcoin ETF BTCX.B-T and CI Galaxy Ethereum ETF ETHX-U-T. He has reduced his ether exposure to add a solana ETF, but declined to name it.
Even though ether’s performance has struggled over the past year, in part because it’s been losing market share to rivals such as solana, Mr. Tapscott still likes ethereum.
“It remains one of the largest blockchain networks with a sizeable market share and ongoing investment and innovation,” he says.
Daniel Straus, managing director of ETF research with National Bank Financial in Toronto, says investing in the volatile altcoin space requires research, education and conviction, and it’s hard to predict which blockchains will succeed.
“Many altcoins resemble high-flying speculative technology projects,” he says.
Bitcoin is unique in that it’s more akin to a digital commodity, such as gold, and its supply is fixed, whereas altcoins are tokens belonging on a blockchain, he says.
It was U.S. bitcoin ETFs – particularly BlackRock Inc.’s iShares Bitcoin Trust IBIT-Q – that played a big role in propelling bitcoin to more than US$100,000 over the past year, he says.
Altcoin ETFs, he says, are more suited to growth-oriented investors for about 5 per cent, or maybe up to 10 per cent, of a portfolio if they have high conviction in certain altcoins.
But there are also multi-cryptocurrency ETFs on the market. Evolve Cryptocurrencies ETF ETC-T holds bitcoin, ether, solana and XRP. CI Galaxy Multi-Crypto ETF CMCX.B-T holds bitcoin, ether and solana. Bitcoin is the biggest weighting in both ETFs.
“Now that the space is maturing and new altcoins are entering the fray, they might be more useful for a new crypto investor just getting started,” Mr. Straus says.
