A blue chip asset is a term used in the finance industry for a stock with great fundamentals and a proven track record. You might think of Apple, Google or Microsoft when you hear the words ‘blue chip asset.’ They’re commonly a part of famous indexes such as the S&P 500 or Nasdaq 100.
The crypto industry uses the same terminology to describe cryptocurrencies. Popular blue chip crypto assets include Bitcoin and Ethereum; but they’re not the only ones. The crypto community might refer to the following assets as being blue chip:
If you want to get better at investing and have a better eye for discovering new blue chip assets, I recommend reading further and learning more about what makes a blue chip, a blue chip.
What are Blue Chip Assets in the Crypto Market?
Assets that deserve the title ‘blue chip’ have several distinctive qualities. First of all, they have great fundamentals – meaning that their inherent technology is superior compared to other assets – and generally perform well in the market with little to no downside movement (even during bear markets). They also tend to have a large market cap due to their recognized qualities and carry a higher price point.
Bitcoin is a great example of a blue chip asset. The asset has great fundamentals:
High network activity
Secure PoW consensus mechanism
Relatively fast transaction throughput (TPS)
51% attack is almost impossible
Bitcoin also has a first mover advantage – thanks to being the world’s first crypto asset – and enjoys high popularity among investors for a long time period. Bitcoin also has a great track record – increasing +80,000% in under a decade – and is the dominant cryptocurrency for payments and other peer-to-peer cash transfers.
Ethereum is another well-known cryptocurrency that deserves its status as a blue chip asset due to its wonderfully executed smart contract technology. Ethereum’s smart contracts allow users to delegate tasks and transactions to smart contracts.
Smart contracts automatically execute a decision once the preset requirements are met. For example, Bob and Alice don’t trust each other and decide to swap two tokens by using a smart contract as the third-party.
Ethereum is also home to DeFI (Decentralized Finance) – a sector where lending and other financial instruments are decentralized – as well as NFTs (non-fungible tokens). The smart contract technology allows developers to build dApps (decentralized applications) on top of the Ethereum blockchain network.
You might spot similar traits when inspecting newer cryptocurrencies that are on the path of becoming a recognized blue chip asset. They warrant attention from whales, receive listings on big exchanges, show signs of accumulation periods, and have developed certain technological assets from their roadmap.
Factors that make Crypto Assets a Blue Chip
There are several factors that influence a project’s position in the blue chip realm. The sections below discuss the following key factors: technology, market performance, reputation, institutional interest, and decentralization.
Technology represents the backbone of a crypto project. No amount of marketing can make a cryptocurrency technologically-sound. But what accounts for technology? It’s the smart contracts, the code behind the application you interact with, the ideas and execution that makes the cryptocurrency delivers in its respective use case.
Bitcoin revolutionizes assets and ownership by offering a decentralized network where you can send money to others in a transparent and peer-to-peer way. Ethereum enables smart contracts that let you create or use dApps and execute trades on decentralized exchanges or lend cryptocurrencies to someone on a lending platform. Chainlink creates price oracles that allow dApps to process real-time price data and facilitate trading, lending, yield farming and so on.
Technology is what makes cryptocurrencies turn from a pipe dream to an application that creates real-world value and captures millions of dollars in liquidity. It’s what helps us purchase funny JPEGs or connect our ledger to a PC and send Bitcoin to your friend in the first place. Without a sound idea that is executed through several layers of technology, there is no chance for a crypto asset to be a blue chip.
People love money. And if there’s a way to place your money somewhere where you’ll create even more money, people will gravitate towards it. A cryptocurrency that consistently gains value and sees little to no downwards movement certainly deserves the title of a blue chip asset. Why? Because good performance proves that there’s real value behind an invisible and digital asset
There are exceptions, of course. A meme token like DOGE or SHIBA might see extraordinary returns over the span of months. But there is nothing that backs the asset apart from speculative value. Once a bear market hits the market and speculators run away, the price will plunge and not return for years.
A remarkable example of great market performance is BNB. This is Binance’s exchange token that clients can use to pay lower trading fees or to access special parts of the platform. BNB derives its value from utility. Binance’s size and market share also plays a role in BNB’s price.
BNB performed better than Bitcoin or any other crypto asset even during a bear market. The token gave great returns and equally good price action in both bear and bull markets. And that’s why BNB is without the shadow of a doubt a blue chip asset.
Reputation is important in all aspects of life - especially in finance. Reputation dictates how likely investors are to part away from their hard-earned money and invest it in a cryptocurrency. Not everyone is a crypto ‘degen’ that buys an asset without even reading the white paper.
The factors that influence reputation are usually related to a project’s team. Is the team composed of famous founders and developers who have a good track record of building protocols and platforms? Has the team a history of treating its community badly or going MIA the second a bear market strikes? These are all questions that you should ask yourself when assessing a team.
Reputation is something that is developed continuously and falls apart or improves as time passes. Although a good reputation is not a guarantee that a team will not behave badly, it gives a sense of credibility and indicates that the project is organized better than others.
Investors love to follow smart money. Following smart money involves copying institutional investors, banks, funds, and companies that invest in a project. For example, if Grayscale launches a new fund for an altcoin and it attracts a lot of institutional investors, you can safely think that the project is backed by smart money.
Some might argue that institutions are not the brightest and that they make bad investing decisions almost as regularly as retail investors. But let me ask you one question: If Peter the plumber from next-door announced he bought SHIBA and Microsoft announced they are investing in Solana, which asset would you rather buy?
Supply and demand is all that matters in the end. And if powerful and big entities announce that they’re buying crypto or investing in a crypto’s infrastructure, you best bet that it’ll grow high. After all, institutional interest is what made the 2020 bull run possible in the first place.
Decentralization is a wonderful but often forgotten concept in the crypto industry. Decentralization is what allows the average joe to manage and use his own money in whatever way he wishes without having to adhere to some higher power’s rules - often a bank.
A decentralized project is often far better managed and has better long-term prospects than a centralized project. There are exceptions of course. But the general rule is that decentralized projects are most likely to succeed in the long term. And long-term prospects carry a huge weight when describing an asset as a blue chip.
Decentralization is a hot topic that many investors like to tackle when discussing a project. For example, Solana has received wide backlash for being semi-decentralized and being ‘owned’ by VC money. But the moment Solana became more decentralized by introducing key changes and letting in new validators, the asset was accepted by investors again.
Blue chip crypto assets are assets that perform well, have a high level of decentralization, are developed by a reputable team, attract institutional interest, and offer technologically-sound products that change the world.
Blue chip assets are favored by investors for being secure in terms of investing. The asset can drop in value, but most of the time, it delivers great performance. The consistency of their performance is what earns them the title of a blue chip and attracts more and more investors.
A blue chip is difficult to spot because by the time most investors start to talk about it, it has already increased in value by a high margin. That’s why it’s important to scan sites like CoinMarketCap or Crypto Twitter and stay up to date. You need to gain a good entry if you want to feel confident with your blue chip thesis. But then again, if the team is good and proposes ideas that sound good on paper, there’s almost no need to worry.
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Marko is a crypto enthusiast who has been involved in the blockchain industry since 2018. When not charting, tweeting on CT, or researching Solana NFTs, he likes to read about psychology, InfoSec, and geopolitics.