Bybit Learn
Bybit Learn
Sep 13, 2022

What Are Blue Chip Cryptos: Are They Safe Bear Market Options?

It’s nothing new: Whenever prices start to turn south in the financial markets, investors immediately seek sanctuary in safe haven assets with solid fundamental value. In other words, they seek out blue chips.

The same can be said of the cryptocurrency market. Blue chip cryptos, like Bitcoin and Ethereum, have been around longer, have solid reputations, and are more stable than other crypto and blockchain coins, making them a popular option for investors during crypto bear markets.

In this guide, we’ll dive into blue chip coins and break down what they are, how they work, how they differ from blue chip stocks, and most importantly, how to invest in them to reduce your risk while enjoying long-term profits.

What Are Blue Chip Cryptos?

Blue chip cryptos are established cryptocurrencies with institutional status, strong reputations, higher liquidity, lower volatility, and sizable market caps.

The term “blue chip” has its origins in the game of poker. In 19th-century America, the game of poker ruled the frontier landscape as red, white and blue poker chips regularly exchanged hands. The blue chips always held the highest value.

The term is popularly believed to have first been used to describe stocks in the 1920s. According to reports, a Dow Jones employee coined the term after noticing certain stocks trading much higher than others.

Throughout the century, “blue chip” came to refer to much more than just a high-priced stock. Today, it refers to stocks issued by established, financially stable companies with strong reputations for weathering storms and withstanding the test of time.

When it comes to crypto, the definition of “blue chip” remains much the same. Blue chip coins, like Bitcoin and Ethereum, have established themselves as institutions in the crypto/blockchain space.

Bitcoin is the original crypto and unquestionably the most established. While it is still subject to volatility at times, it has managed to consistently increase in value over time since its inception in 2008.

Ethereum has also grown incredibly in both prominence and value. As a DeFi pioneer and the primary platform for non-fungible tokens (NFTs), its blue chip status is in no danger of disappearing any time soon.

Due to their relatively recent emergence, blue chip cryptos like Bitcoin and Ethereum haven’t exactly stood the test of time like their stock cousins. However, they have weathered downturns and bear markets, and they are considered to be financially stable by the masses.

Blue Chip Cryptos vs. Blue Chip Stocks

Traditional blue chip stocks are typically a component of reputable indexes, such as the Dow Jones Industrial Average, S&P 500 and the NASDAQ in the U.S. In the UK, blue chips call the FTSE UK Index home. While no definitive benchmark exists as far as market capitalization, a generally accepted benchmark for a blue chip stock is a market cap of $5 billion.

Blue chip stocks are leaders in markets, industries and sectors. Some examples of companies with blue chip status include Amazon, Google, Walmart, Disney, Coca-Cola, General Electric and IBM. These are all highly liquid, highly respected, highly reliable, and most importantly, highly stable. This makes them safe investments, especially in bear markets.

For the most part, the same holds true for blue chip crypto. Over 18,000 different crypto coins have been minted, and more and more seem to be added each day. However, very few have earned a strong enough reputation or reached a market cap worthy of blue chip status.

Despite being fairly new and not having existed for as long as some blue chip stocks, Bitcoin and Ethereum have stood out as blockchain pioneers and blue chip cryptos you can count on in almost any market condition.

What Makes a Crypto Blue Chip?

Like their blue chip NFT counterparts, there are several factors distinguishing blue chip coins from the thousands of altcoin options now available for traders and investors with less aversion to risk. Some of these factors include:

Long-Standing Operation

First and foremost, blue chip cryptos aren’t exactly the new kids on the block. In fact, quite the opposite is true. They’ve been around for well over a decade and have withstood a wide variety of market conditions. As the original cryptocurrency and founding parent of blockchain technology, Bitcoin has survived longer than any other, helping it achieve its blue chip crypto status.

Founder’s Reputation

In the traditional world of stocks, the term “blue chip” is used to describe a well-established company globally recognized as a reliable investment. Blue chip companies have strong reputations for creating quality products or services and weathering downturns. The same can be said for blue chip coins like Bitcoin and Ethereum, which have strong reputations within the investor community and the entire world.

Institutional Status

No other coin has as much institutional support as Bitcoin. While Ethereum and its DeFi platforms are considered blue chips with some serious investors, Bitcoin is currently a part of corporate balance sheets like CME futures, Grayscale Trust ETFs, and more. Large companies like Tesla hold billions in Bitcoin alone.

Large Market Cap

Traditionally, a minimum market capitalization of $5 billion is needed to earn blue chip crypto or stock status. As two of the crypto world’s heaviest hitters, Bitcoin and Ethereum blow this figure out of the water. With respective current market caps of $1 trillion and $500 billion, they definitely meet the mark.

Higher Liquidity

High liquidity and being able to easily move in and out of positions is another hallmark of blue chip coins and stocks. Billions of BTC are traded every day, so unless you want to buy or sell millions worth of coins, you’ll find a market flush with liquidity whenever you need it.

Highly Interchangeable

Sending and receiving your cryptocurrencies play a major role especially when funds are transferred from one wallet to another. It can either be between crypto exchanges or peer-to-peer wallets. Cryptocurrencies like Bitcoin and Ethereum have to be highly interchangeable with one another in order for more adoption to take place. Users would want to be able to exchange BTC in return for ETH of the same value instead of using an illiquid asset like NFTs.

Lower Volatility

Cryptocurrencies and volatility pretty much go hand in hand. While wild price swings are the bread and butter of avid traders, the whipsaws can be brutal for HODLers. That said, some coins are more volatile than others. While volatile, blue chip cryptos such as Bitcoin and Ethereum don’t move as much as other cryptocurrencies, making them safer, more stable investments in both bull and bear markets.

Level of Decentralization

At its core, crypto is all about decentralization. However, some coins are more decentralized than others. Bitcoin, Ethereum and DeFi in general are imbued with the concepts of equality and independence and represent the embodiment of democratic ideals.

Why Is BTC a Blue Chip Crypto?

Bitcoin (BTC) checks all of the boxes above, making it the premier blue chip crypto and a safe haven for anyone looking for less volatility and greater long-term growth. As the very first crypto ever created, Bitcoin has survived longer than any other cryptocurrency and certainly qualifies as a high-quality asset.

With its long track record, it should come as no surprise that Bitcoin also has the largest market cap of any cryptocurrency. In fact, BTC is such a driver in the crypto space that the price movements of other blue chip coins and non-blue chip coins alike often depend on it for guidance.

Unlike other cryptos and blue chip coins, Bitcoin investors and traders enjoy the first-mover advantage. They also benefit from Bitcoin’s scarcity. With only 21 million BTC ever to be available, the price of BTC continues to climb and prove itself as a rock-solid blue chip crypto investment.

Why Is ETH a Blue Chip Crypto?

Ethereum (ETH) is the second largest crypto in terms of market cap, but is the leader in usage, making it a powerful player in the crypto space. Its robust, revolutionary platform supports over 70 percent of all available altcoins, and has the greatest number of decentralized applications (DApps) built on it.

As a whole, ETH commands 20 percent of the crypto market. Yet, it continues to improve and evolve, making it an ever more important component of the cryptocurrency space.

With its widespread usage and advanced technology, Ethereum is without a doubt one of the top blue chip coins worth investing in almost any time, but especially in times of crisis when considerations of safety and security outweigh the desire for explosive short-term gains.

Other Blue Chip Cryptos

Among the many projects in crypto, some of them have secured their position as 'lower tier' blue chips. As competition is high and few have the potential to survive through a bear market, here are 3 blue chip coins following behind Bitcoin and Ethereum.

Binance Coin (BNB)

Binance Coin (BNB) was launched in 2017 as the native coin of the Binance ecosystem. It has the third largest market cap in crypto at $47.9 billion, excluding stablecoins like USDT and USDC. BNB has survived well and is still following behind Ethereum strongly with no other coins near its market cap. Users can use BNB to pay for gas on the BNB Chain or receive fewer trading fees when using the exchange.

Ripple (XRP)

Ripple (XRP) was created in 2012 for Ripple’s payment platform. The XRP blockchain was initially popular for its instant money transfers to anywhere in the world but has dropped off since many other projects started coming on board. Since its beginnings, it has climbed to the fourth largest market cap behind BNB at $17.8 billion, despite the years of lawsuits around Ripple and XRP. Although XRP has come a long way, it remains to be seen if XRP would be able to survive future bear markets.

Cardano (ADA)

Cardano (ADA) was launched around the same time as BNB in 2017 for the Cardano network and as a competitor to Ethereum. As the fifth largest crypto by market cap, ADA trails behind XRP at $17 billion. While Cardano is still in heavy development, the Layer 1 is set for its upcoming Vasil hard fork which promises to increase throughput by multiples on top of the deployment of smart contracts and native stablecoin DJED previously, making Cardano a perfect option to consider for the future.

How to Invest in Blue Chip Cryptos

If you’re interested in investing in blue chip cryptos according to past performance, you first need access to a platform like Bybit or another cryptocurrency exchange that sells it. You then need to convert your government-issued fiat currency into blue chip coins and follow a few more steps.

Step One – Choose Where to Buy

To buy and sell blue chip crypto, you need to choose a cryptocurrency exchange to use. Crypto exchanges are similar to stock trading platforms like E*Trade, TD Ameritrade or Schwab. As one of today’s top exchanges for investing in blue chips and other coins, Bybit is an excellent option.

Step Two – Create an Account

Once you’ve selected a reputable crypto exchange like Bybit, you then need to create an account by providing your name, address, email address, and any other information required to verify your identity and residential address.

A photo ID and a recent utility bill or bank statement will also be needed. This is known as the Know Your Customer (KYC) process, and it’s a legal requirement for exchanges operating in the U.S. While most accounts are instantly approved, you may have to wait a day or two for your account to be verified.

Step Three – Fund Your Account

In order to invest in blue chip coins, you’ll next need to fund your account. The cheapest way is to link your bank account and exchange account. However, this can take a few days. To save time, you can buy blue chips with a credit or debit card instead. The fees are a little higher, but you have the added benefit of near-instant deposits.

Step Four – Buy Crypto

With your account funded, it’s finally time to buy some crypto. Bybit and similar popularly used platforms allow you to easily scan, look at charts, and purchase any number of cryptocurrencies, including blue chips like Bitcoin and Ethereum.

To buy crypto, you simply select 'crypto', enter how much you’d like to buy (how much you want to spend), and let the exchange process the transaction. There are different types of buy orders you can execute, depending on your trading experience and goals, but for the most part, that’s all there is to it.

Step Five – Store Your Crypto

Once you’ve acquired some blue chip coins, the last step is choosing where and how you want to store them. Do you want to keep all of your cryptos on the exchange where you just purchased them, or do you want to transfer them to your own crypto wallet?

The second option is more popular and is highly recommended. With your own external crypto wallet, you hold the keys and have complete control over your crypto, with zero susceptibility to third parties. Known as “cold storage”, these stores your cryptocurrency offline on a USB device.

While learning how to set up and use a crypto wallet can take some getting used to, it’s a safer overall choice for avoiding hackers, errors, outages, and anything else that might pose a threat to your funds’ safekeeping on an exchange.

The Bottom Line

If you’ve been a fan of crypto and DeFi for any length of time, it’s great hearing terms like “blue chip” being used to reference them. We’re used to hearing about safe stocks with predictable returns, but we’re just now starting to see this attitude toward the crypto world. With the rise of blue chip cryptos like Bitcoin and Ethereum, investors can safely put their money into assets that possess the rare combination of both security and profit potential.