Over the past year, Shiba Inu (CRYPTO:SHIB) has skyrocketed 68,000,000%, growing at a pace that could turn relatively small sums of money into millions of dollars. While impressive, Shiba Inu lacks actual utility, and those gains have been driven by nothing more than hype. That leaves a big hole in the long-term investment thesis, especially when other cryptocurrencies have seen mainstream adoption.
For instance, PayPal Holdings debuted the ability to buy, sell, and spend cryptocurrency on its mobile apps last year, choosing to support only four assets: Bitcoin (CRYPTO:BTC), Ethereum (CRYPTO:ETH), Litecoin (CRYPTO:LTC), and Bitcoin Cash. And last week, AMC Entertainment Holdings made a similar decision, allowing moviegoers to make online payments with the same four digital assets.
Those are just two examples of shifting sentiment regarding cryptocurrency, but there is good reason to believe more institutions will follow suit. For that reason, Bitcoin, Ethereum, and Litecoin look like smart long-term investments. Here’s what you should know.
Bitcoin was the first widely adopted cryptocurrency, and it remains the most popular and the most valuable. Not surprisingly, institutional adoption is on the rise. That includes companies like MicroStrategy and Tesla, governments like Bulgaria and Ukraine, and asset managers like Grayscale Investments, owner of the Grayscale Bitcoin Trust. Collectively, institutions held 5.8% of all Bitcoin in January 2021, but that figure now sits at 7.1%. And that trend is set to continue.
In September 2021, Fidelity published a digital-asset study focused on institutional investors. Based on a survey of 1,100 respondents, Fidelity reported a year-over-year increase in “perception and appeal, current exposure, and propensity for future investment.” In fact, 52% of respondents said they owned digital assets, and the three most common holdings were Bitcoin (37%), Ethereum (20%), and Litecoin (12%).
Fund manager Cathie Wood shares this sentiment, but she goes one step further. Wood believes institutional investors will allocate 5% of their total funds to Bitcoin over the next five years, driving its price to $500,000 by 2026. Of course, no one knows the future, but it appears that Wood’s thesis is already playing out, given the uptick in institutional adoption so far in 2021.
Ethereum is a programmable blockchain, meaning it can support smart contracts and decentralized applications (dApps), including decentralized finance (DeFi) services. DeFi services are products that make it possible to save, borrow, lend, or invest money without going through an intermediary like a bank. And by eliminating the middleman, DeFi products promise to cut costs and expand access to financial services.
On that note, approximately $172 billion is currently locked in Ethereum DeFi applications, making it the most popular DeFi ecosystem by a wide margin. More importantly, those services require computing power, meaning they aren’t free. Users pay transactions fees using the blockchain’s native cryptocurrency. That means Ethereum’s price should continue to rise as DeFi products see greater adoption.
Additionally, as noted above, Ethereum is the second-most widely held digital asset among institutional investors. Assuming that pattern continues, it’s not hard to imagine that more institutions will diversify into Ethereum alongside Bitcoin in the coming years. And as that happens, Ethereum’s price should rise.
Litecoin is very similar to Bitcoin. In fact, it was created from a modified version of Bitcoin’s source code, and those modifications imbue the blockchain with a few noteworthy qualities. Specifically, Litecoin is designed to be four times faster and four times more abundant.
Whereas the Bitcoin supply is limited to 21 million coins, and new blocks of transactions are validated every 10 minutes, the Litecoin supply is capped at 84 million coins, and new blocks are validated every 2.5 minutes. For that reason, Litecoin is often compared to digital silver, just as Bitcoin is often compared to digital gold. In other words, Bitcoin is more scarce than Litecoin, but both are finite assets. And so long as demand persists, that quality should make them more valuable over time.
Finally, as mentioned, Litecoin is the third-most widely held cryptocurrency among institutional investors. Going forward, with more enterprises and asset managers diversifying their treasuries with crypto, Litecoin’s popularity should translate into demand, propelling the price higher. That’s why this cryptocurrency looks like a worthwhile investment.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.