Which one is a better investment, Bitcoin, Ethereum, Litecoin, or Ripple?

Bitcoin, Ethereum, Litecoin and Ripple all seem overvalued right now.

But if I had to pick one of the four, I would pick:

Ripple short-term
Bitcoin long-term.
Ripple because it has gone up less.

However, banks may just copy Ripple and take it private, hiring the best Ripple developers as consultants, etc. Ripple is also the most centralized, arguably losing some of the benefits of trustlessness that blockchain technology provides.

So I'm not sure Ripple's a great bet long-term.

But Bitcoin may be a great bet long-term if Bitcoin replaces gold.

Gold has a market cap of roughly $7.7 trillion.

As the saying goes, be fearful when others are greedy.

And vice versa.

The total market cap of all cryptocurrencies was $7.13 billion on January 1, 2016.

Now it’s about $300 billion.

From Cryptocurrency Market Capitalizations | CoinMarketCap -

In comparison -

Mark Cuban on Twitter

To be clear, Mark Cuban replied to Jared Schaffer, not me. I just happened to see his and Jared’s quote and thought it was relevant.

I don’t give advice on Quora.

Here’s what I tell myself-

Now is a horrible time to buy Bitcoin, Ethereum, Ripple and Litecoin (collectively, “BERL”). There is no way BERL is worth anywhere near the current ~$215 billion collective market cap.
From Coinmarketcap.com:

BERL has been massively overvalued for a while now.
Avoid cryptocurrencies generally unless you can get in on the presale. Even then, it is a gamble and the terms matter.
We're in a cryptocurrency bubble. Bubbles tend to go on much longer than people think they will. Smart Wall Street friends were predicting the mortgage bubble would crash back in 2003. They were 5 years early. Bubbles always pop. No one knows when.
The reason BERL is overvalued is because no one outside the niche space of cryptocurrencies will miss them if they disappear tomorrow. There’s no clear path to a killer app that can go mainstream.
What big, legal unmet need are any of them filling?
Or clearly on the way to filling?
Potential is potential. No more. No less. Buying one ether (one Ethereum token) for $434 gives you a lot of potential for a big payoff. You know what else gives you a lot of potential? 434 $1 lottery tickets when the MegaMillions jackpot is $500 million.
That doesn’t mean your lottery tickets are worth $500 million. Or even $434.
The average lottery ticket with a face of $1 is worth quite a bit less than than $1 because of the high margins and expenses embedded into the system.
When you overpay for a cryptocurrency, you are buying lottery tickets. With much worse odds.
So far the only legal killer apps for the cryptocurrencies you mentioned are:
Ethereum - ICO platform/gateway.
Ethereum’s value as an ICO platform drops when the ICO bubble implodes or they pull another TBTF bailout of the next DAO fiasco.
Ethereum is also a gateway to other coins. Meaning people usually buy Bitcoin or Ethereum with cash and then convert to a hot ICO cryptocurrency. Ethereum may implode when altcoins go to zero.
Bitcoin - Store of value/digital gold and gateway to other coins. I am reliably informed that US intelligence is very interested in Bitcoin. Why wouldn’t they be? Or any government, like Russia or North Korea? Many people continue to store their Bitcoin on exchanges. What if a government agency hacks into Coinbase, etc. Or Venezulea cracks down exchanges popular with Venezuelans?
Or if a better alternative comes along without all the infighting and scaling issues Bitcoin seems to have.
Bitcoin does not iterate very fast.
Though the code seems the most secure by far.
Transaction times, fees and unconfirmed rates are not as low as they ought to be. Though that is changing as Segwit and Lightning is used more and sidechains and layer 2 and higher solutions emerge.
That said, some people who live under governments with current and/or recent hyperinflation and/or massive currency devaluations bought or are buying Bitcoin, including Kazakhstan, Iran, Argentina, South Sudan, Suriname, Venezuela and Zimbabwe.
But how many people from these less wealthy countries are buying Bitcoin more than gold or US dollars? Are their Bitcoin wallets and exchanges getting hacked? What happens when they tell their friends they got hacked and to just buy gold or Swiss Francs. I'd love to see data on how much of Bitcoin buying is speculative buying and FOMO in Korea, China, the US, etc. versus people buying Bitcoin to meet an unmet need.
Marco Venti has an interesting analysis of Bitcoin’s true worth right now, at least if you look at it as a currency. His conclusion: Bitcoin is probably worth rougly $2.1 billion. Marco Venti's answer to What is an argument against saying that bitcoin will only go up because there is a limited supply? That’s a far cry from Bitcoin’s current market cap of $165 billion plus. I’d love to see someone analyze Bitcoin’s fair value as remittance and a conduit to exchange Bolivar ultimately into US Dollars or gold via Bitcoin.
Ripple - Great PR. They seem to be the most pragmatic and a lot of banks seem to partner with them, etc.
“Ripple's focus is on providing technology to banks looking to make cross-border payments more efficient” (hat tip @Kenny Alves)
However, I wonder if banks will just copy the open source Ripple code and take it private. They can just hire some great Ripple developers to be consultants. Banks can then use their private version of Ripple and trade with each other and big institutional clients like big hedge funds on it.
I helped create several of the default swap indices traded by many banks. When I worked for several years on Wall Street, the only things I saw that we did that was even close to “open source” was work on standardizing industry deal documents such as for swaps and derivatives through International Swaps and Derivatives Association, Inc.
Litecoin - Potential to be a friendlier, more scalable version of Bitcoin. Litecoin already activated SegWit and Lightning - which Bitcoin finally did but did not do for many months after each was first created for Bitcoin.
That said, I’m bullish on cryptocurrencies long term. The best cryptocurrencies (or products, services, startups, etc.) meet an unmet need.
Bitcoin is a kind of distributed ledger tech (“DLT”). DLT is a great way to make sure what’s important to you (your identity, who your children are, your title to your house, etc.) doesn’t change without your permission and doesn’t depend on someone else (government, Google, Facebook).
The winner in this space might be a cryptocurrency that hasn’t even launched yet.
If you have strong conviction to buy, then buy and hold until you lack strong conviction.
If you don’t have strong conviction, don’t buy or, if you are holding, then consider selling. Else good chance you’ll panic sell.
No FOMO. Don’t panic buy. Or panic sell.

Be extra wary of social proof. Everyone is susceptible to it.
As with any “investment” (really, speculation), don’t bother unless you identify a real, unfair advantage over others in buying BERL. What do you know that they don’t?
One or more cryptocurrencies will make it big eventually but that’s a guess.
Maybe the winning cryptocurrency has not launched yet. Apple’s iPhone and Google search were latecomers in their fields.
99.9% of cryptocurrencies are worth basically zero by any reasonable measure.
What is the evidence any of them have:

a killer app?
pricing power? (Here’s a different take on Bitcoin transaction fees: Can Bitcoin transaction fees keep going up because there’s no good substitute?)
an unbreachable moat surrounding a valuable castle? (as Warren Buffett might say)
The vast majority of us should treat cryptocurrency as lottery tickets.

Just like you spend $20 or whatever at the local 7–11 or gas station when the lottery goes over $100 million, you can put a small amount of play money - money you won’t miss - on cryptocurrency.

Remember, you do not have to buy lottery tickets.

If you do buy cyrptocurrencies, just hold it and forget it.

It’ll probably go to zero.

But I believe one - possibly more - of them might change the world and finally find a legal killer app with an unbreachable moat in a massive market.

In 2007 I had relevant, legal, solid inside information because I worked on Wall Street at one of the banks that massively screwed up - Merrill Lynch.

I dumped almost all my equity positions one month off the market high.

10 months later Lehman imploded, nearly taking down Morgan Stanley, Goldman Sachs, many other institutions and causing a near-global depression.

Fast forward to 2017. I again have legal inside information. Not as great as last time.

But I even turned down multiple hot ICO presales I had access to.

Why?

Because I didn’t have strong conviction to hold and then dump at launch (or later).

Bottom line:

Because of the pseudonymity and decentralization, a cryptocurrency will always be useful for helping people and organizations:

launder money
bypass capital controls
do other illegal activity.
Silk Road did this, got caught. Now the Silk Road CEO is serving a life sentence in the US.

Another way to look at it is this:

You either have strong conviction present trends will continue or you don’t.

If the former, then act on your strong convictions.

If you buy, this will help the good folks who are trying to ICO (disclosure: I am advising a new cryptocurrency investment fund (in formation) and a new cryptocurrency).

If you sell, then you will be unlikely to panic buy later.

If you’re not sure present trends will continue, don’t buy.

Just wait. Warren Buffett often waits a long time before making an investment.

If you think the market is overvalued right now but believe in [pick your favorite cryptocurrency] long-term, then don’t buy.

Wait.

The dot com bubble started in 1997. As you can see, there were many times to get in the NASDAQ below 2000. Until 1999 to 2001.

If you bought at just below 2000 - let’s say in 1998 - you’d be barely up in 2005. 7 years later.

So you can buy and hold. But are you buying at the peak at 5000?

What’s the point?

I have had to dump stock to raise cash to help someone else I cared about meet a margin call.

I made sure that person never needed to ask me for an emergency loan ever again. :)

The world’s best investment banks with really smart traders and risk managers - Goldman Sachs, Morgan Stanley and Merrill Lynch used leverage, had strong conviction (indeed, some of the ones responsible were quite arrogant) and nearly imploded in 2008.

What’s the killer app or apps for each right now?

I understand there’s a lot of activity.

Who cares?

I care about results.

Bitcoin has been around since 2008.

Is it like startups?

Because 92% of high growth startups fail. (Source: Max Marmer, blackbox, Bjoern Lasse Herrmann, blackbox, Ertan Dogrultan, blackbox Ron Berman, UC Berkeley, Startup Genome Report Extra on Premature Scaling: A deep dive into why most high growth startups fail, August 29, 2011)

Webvan and Kozmo - each a poster child of the dot com bubble - both made something people want. But that’s not enough.

Delivering groceries, etc. for free is making something people love because you are massively subsidizing the costs.

“Hi, would you like to have your groceries and food delivered for free? Same cost as shopping in the store. No tipping!”

That’s not a business. That’s a VC funding your life.[1]

When you invest in cryptocurrencies, who’s life are you funding?

Are you just burning money?