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Monday, December 5, 2022

Altcoins: are they worth investing in?

Investing in crypto is not easy since you need to carefully build a stable portfolio so you won’t experience any substantial losses. And stable cryptocurrencies are not that easy to find, except maybe Bitcoin and Ethereum, since their market cap is above more than $10 billion. Besides those coins, you also need to look for more balanced alternatives that can decrease your investment risk, like stablecoins, altcoins and other tokens. But today, we’ll get into altcoins and find out if they’re worth the hype, so let’s dive in!

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What are altcoins?

Generally speaking, altcoins are considered to be any cryptocurrency other than Bitcoin and Ethereum. Developers started to release altcoins shortly after Bitcoin to offer an alternative to it, which is why altcoin is short for alternative coin. Some examples of altcoins include Litecoin, Uniswap, Dogecoin and Cardano. Developers had a unique vision of what a cryptocurrency should be, which is why each one of those examples has something improved that Bitcoin or Ethereum lack.

Pros and cons of altcoins

Still, altcoins have their ups and downs. For a beginner, it would be best not to rely on them only because even if they can offer high returns, they’re pretty risky. They have improved versions of Bitcoin, higher survivability on the market, and a variety to choose from.

However, when it comes to disadvantages, we can name a few. Since they have lower popularity than usual cryptocurrencies and a smaller market cap, altcoins are less liquid than Bitcoin. This happens because the market is also not that populated, and there’s less activity going on, which leads to another problem. 

Many altcoins have lost investors’ interest, along with developers and the entire community, which means there’s more space for scams. What’s also driving investors away is that altcoins are not that easy to distinguish between use cases. But let’s see how many types of altcoins there are.

Types of altcoins

Not all altcoins are the same. First, we have payment tokens, a type of altcoin that is made to be used as currency to be exchanged between parties. Bitcoin, Ethereum and Tether are payment tokens. Next, we have stablecoins, which are used to face the volatility of the crypto market. Their purpose is to reduce it by pegging their value to fiat currencies, gold or other cryptocurrencies. So, their price fluctuations are not meant to exceed a particular range. The USD coin (a digital currency backed by US dollar assets) is one of them.

Then, we’ve got security tokens that are offered on stock markets. Through a process called tokenization, their value is transferred from an asset to a token, and any asset can be tokenized, even real estate. But the asset must be secured and held by entering its information on the 

blockchain to create a token.

Utility tokens are made to be used in the blockchain network. For example, you can make purchases, pay network fees or redeem rewards. Ethereum is one of the most known utility tokens since Ether is designed to be used in the blockchain to pay for transactions. Filecoin is another example, and it’s used for securing information and buying storage space on a certain network.

Finally, governance tokens provide users rights within a blockchain, like voting for changes and contributing to decisions. They’re more frequent in private blockchains, where businesses or organizations use them.

Bitcoin vs Altcoin

Although altcoins are intended to be better versions of Bitcoin, they’re very much related to this coin. For example, if you look at the BTC coin price today and compare it with an altcoin, you’ll see similar ups and downs since any significant price change in Bitcoin will impact altcoins more. This also happens because altcoin buyers tend to purchase Bitcoin with fiat currency and then exchange it for the preferred altcoins.

Still, Bitcoin might be a better investment since it’s the most purchased, held and traded cryptocurrency. The thing with altcoins is that only a few end up having a solid practical use case, while the vast majority fade away on the market, which makes them unreliable in the long run and not feasible enough for the market’s volatility. On the other hand, Bitcoin showed us it could withstand the market crashes of the past years, making it the safest coin to invest in.

But if you want to have a diversified portfolio and add some altcoins, you may tailor your risk by choosing coins with strong fundamentals and high quality. It’s important to consider their market cap and the magnitude of the price swings, as well as how Bitcoin acts because when its price rises, money will “flow” to altcoins and vice versa.

Best altcoins to invest in

Some of the most trustworthy altcoins include Ethereum, Litecoin, Stellar and Polkadot. Each one of them has something special other than Bitcoin’s features. For example, the Ethereum blockchain was made with the purpose of being better than Bitcoin. It’s hard to say if it did, but since it’s the second most used cryptocurrency, it may have paved the way toward getting to the top. On Ethereum, you can also create apps, exchange NFTs and write smart contracts.

Litecoin is known as the silver alternative to Bitcoin, and it also has a similar mechanism. Its production capacity is four times bigger than Bitcoin’s, but some investors may consider it redundant. The next altcoin, Stellar, focuses on international bank transfers, meaning that it exchanges value across different locations and then transforms the cryptocurrency into fiat money. Finally, Polkadot is a promising altcoin because it launches its experimental features on the Kusama blockchain for testing, making it open for innovations.

Wrapping up

Altcoins are said to be the better version of Bitcoin, the first cryptocurrency ever to exist. And although they have plenty of benefits, altcoins are pretty risky to invest in because they’re not stable and can’t seem to survive too much on the market. Still, some of them have promising features, and we’re excited to see what the future of altcoins holds!

MarketBillion
MarketBillion
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