BTC: Although Bitcoin continues to dominate the cryptocurrency market, there are many other competing digital assets known as alternative currencies or altcoins. With so many options available, investors must understand how each altcoin differs from Bitcoin and what it may provide in a portfolio.
Altcoins may be thought of as Bitcoin variants. In other words, developers build altcoins to enhance the functioning of Bitcoin or to provide features that Bitcoin does not have. However, not all cryptocurrencies are the same. While some alternative currencies may have value for investors, others progress only on excitement and live on conjecture.
Many altcoins have had spectacular climbs this year, mirroring Bitcoin’s surge this year, which has risen more than 110 percent as of Nov. 15. Ethereum (ETH), Bitcoin’s main rival, has risen roughly 500 percent year to date, while the upstart Shiba Inu Coin (SHIB) has gained an incredible 380,000 percent in a year.
Such figures may lure investors searching for a quick buck. However, investors must be aware of some particular hazards associated with cryptocurrencies.
What Exactly Are Altcoins?
Altcoins are cryptocurrencies that exist in addition to Bitcoin. However, altcoins utilize Bitcoin as a standard since it was the first cryptocurrency and has dominated the market, accounting for the vast majority of all cryptocurrency market capitalization.
“As the first cryptocurrency, Bitcoin established a precedent for how cryptocurrency projects should work,” says Colin Pape, creator of Presearch, a search engine powered by blockchain technology, like cryptocurrencies.
While both altcoins and Bitcoin employ blockchain technology, the purpose, features, and functioning of these digital assets might differ. There are dozens of altcoins, however, the following are some of the most popular:
- The ripple effect (XRP).
- Litecoin (LTC) (LTC).
- Cardano (ADA).
- Solana (SOL).
- The Dogecoin cryptocurrency (DOGE).
- Shiba Inu Coin
Altcoin currency creators and developers aspired to build new versions of Bitcoin based on what they considered was lacking from Bitcoin’s platform.
Ethereum, for example, is a system that enables users to transmit money to one another, but it can also be used as a tool in application development where new tokens may be produced on the network.
Cardano, like Ethereum, aims to provide peer-to-peer transactions and to let developers construct apps on the network. Cardano’s platform, on the other hand, takes a research-intensive approach to growing up its blockchain network.
Litecoin includes a variety of characteristics as well. To begin with, Litecoin has a bigger supply than Bitcoin, and transactions on the Litecoin network are often quicker. Litecoin’s goal is to be a silver altcoin, similar to how some regard Bitcoin as a gold altcoin.
There are an infinite number of altcoins, but they do not necessarily compete with Bitcoin. Rather, “the objective of altcoins is to be initiatives that build on top of open-source blockchain technology, enabling altcoin use cases to the old financial system and huge tech corporations – think Defi (decentralized finance) or NFTs (nonfungible tokens),” Pape explains.
Differences Between Bitcoin and Other Cryptocurrencies
Bitcoin (BTC) has superior investment fundamentals than the overwhelming majority of altcoins, it is fair to claim. Bitcoin is the most popular cryptocurrency, having been acquired, owned, and exchanged the most. It has a market valuation of around $1.2 trillion, accounting for more than 60% of the entire market capitalization of cryptocurrencies. Bitcoin’s daily trading volume exceeds $30 billion, indicating that it is a highly liquid asset.
Unless a solid practical case can be made for each Bitcoin alternative, there is a great likelihood that the currencies will ultimately fade away. Many cryptocurrencies were established for experimentation, but even those with superior foundations will struggle to catch up to Bitcoin. While this is going on, Bitcoin’s popularity and demand are increasing.
There is some disagreement over how to approach Bitcoin as an investment, but it is designed for future usage. Some investors view Bitcoin as a means of storing money, citing its growing acceptability as a payment currency.
Furthermore, demand for Bitcoin is increasing among both individual and institutional investors. As a consequence, increased investor interest leads to higher legitimacy and acceptance of Bitcoin over time.
Another element that contributes to Bitcoin’s supremacy over altcoins is that Bitcoin has shown the capacity to endure market collapses.
Investing in Altcoin Cryptocurrencies
When Bitcoin BTC rises, altcoins tend to rise as well, and when Bitcoin falls, altcoins tend to decline as well. However, the climbs and falls of altcoins are even more volatile than those of Bitcoin.
Nonetheless, in a market where Bitcoin is trading around record highs, some investors see an opportunity in altcoins.
Altcoin investors who wish to diversify their holdings should evaluate the dangers involved with these digital assets. There are over 10,000 cryptocurrencies, so the chances of selecting one of the handfuls that will be around for a long time are slim.
“If you select the appropriate altcoins, particularly the smaller ones, they have the potential to give exponential returns on your original investment. A Solana coin today worth over $200 cost only $2 a year ago. Most altcoins, however, will never take off and will likely lose what little value they have if the project is not maintained “he claims.
Experts told U.S. News that since cryptocurrencies are high risk, it’s essential to look for alternatives that are high in quality and have good foundations. Risk-averse investors should look for cryptocurrencies with the potential for future general usage, taking into account the size of their market value and the amplitude of price volatility.
Meme currencies such as Dogecoin and Shiba Inu may ride community-driven waves to exponential highs, but according to Saponaro, “these peaks are generally short-lived since there is little to no fundamental foundation for the price of the asset.”