Although considered risky and highly speculative, Bitcoin is still considered one of the most sought-after forms of investment by most investors and even private individuals.
To minimize the risks involved, financial advisors often recommend diversifying your portfolio. When we talk about diversity, there are other potential cryptocurrencies in the market besides Bitcoin. Cryptocurrencies other than Bitcoin are called alternative coins.
This article will tackle the utmost information and tips every investor needs to know before investing in alternative coins.
What exactly are alternative coins?
Alternative coins or altcoins are forms of cryptocurrencies other than Bitcoin. Ether, the native coin for Ethereum, is considered the most popular alternative coin in the market. Other well-known names are Litecoin, Tether, and Dogecoin, the meme coin that became instantly popular for being Elon Musk’s new pet.
Altcoins are based on keywords, alternatives, and coins. In essence, altcoins are cryptocurrencies alternative to Bitcoin.
Most cryptocurrencies have the same mechanism and characteristics as Bitcoin, but some have distinguishing features and different capabilities. Most of them utilize blockchain technology – a familiar term for the public distributed ledger that records all data and transactions. Some altcoins may have low volatility, and others use smart contracts. Their distinguishing features are what attracted investors to try out altcoin investments.
As of 2022, there are over 17,000 alternative coins in the market, according to CoinMarketCap. Choosing which cryptocurrency best suits your financial goals can be quite a complicated decision. But with the right research and some helpful tips from the experts, you can succeed in your trading journey.
Suppose you are new to the crypto space. In that case, most experts advise that new investors stick to the more reputable trading platforms such as Binance, the Immediate Edge platform, or Kucoin, which will guide you in choosing the best broker in your region. Rest assured that these brokers will provide you with tools that will help you maximize greater options.
Types of altcoins
Here are the main types of altcoins that every trader must be looking out for:
Mining-based altcoins
Based on its keyword, mining-based altcoins are mined and utilize proof-of-work, a method wherein coins are generated by solving algorithms and complicated mathematical problems. New blocks are created for each problem solved. The market’s most popular examples of mining-based alternative coins are Litecoin, Zcash, and Monero. There are also pre-mined altcoins under this category that do not require algorithms but are already distributed in the market before being listed. One of the best examples of this coin is Ripple, whose native coin is XRP.
Stablecoins
To provide a resolution to the instability of crypto prices, stablecoins are created. Stablecoins are cryptocurrencies that are backed by fiat currencies or external assets.
Some notable stablecoins that have already made a remarkable existence in the crypto market are Tether(USDT) and USD coins (USDC). The usual ratio for stablecoins is 1:1, meaning $1 is equivalent to $1 USDT/USDC.
Security tokens.
These tokens are the ones with digital provenance. They often are compared to traditional stocks due to their similarities. They both promise equity in the form of dividend payout to golfers.
The first coin to offer equity in a US-based issuing company is the wallet firm of Bitcoin named Exodus.
Meme coins
Meme coins like Shiba Inu and Dogecoin were created for fun or as a joke. Elon Musk has tweeted about the newly adopted pet, Floki, from Shiba Inu. Since then, meme coins have been significantly popular.
Are altcoins worth investing in?
The bottom line is that altcoins can be a good alternative to Bitcoin, especially for those who want to diversify their portfolio. They can be cheaper yet have good potential in reshaping modern finance.
However, since every investment carries risks, it is important, especially for those who have just started in the crypto space, to research the different types of alternative coins to determine which ones best suit their investment goals. Several alternative coins are designed and created for experimentation. Most altcoins still have a long way to go to catch up with the biggest names in the market. Like Bitcoin, you must be aware that alternative coins might as well be speculative and highly volatile.
Conclusion
Before investing, you must always do a background check on a certain coin to check whether it is reputable enough to be added to your investment portfolio. When choosing an altcoin, always consider its utility and trading volume.
Picking an altcoin that is truly here to stay is not easy, given the fleeting value of cryptocurrency. Engaging in altcoins is not recommended for passive investors. Rather, they can be suitable for those who want to experiment with crypto, especially with decentralized finance or DeFi. Lastly, the crypto investment will always remain speculative. Do not invest more than you can afford to lose.
