Understanding Altcoins: What Investors Need to Know

What Is Altcoin? Definition and Development

In the world of cryptocurrency, besides Bitcoin, there are thousands of other digital currencies collectively called altcoins (alternative coin - alternative cryptocurrencies). Altcoins are coins issued after Bitcoin, based on similar Blockchain technology platforms but with improved features such as transaction speed, security, or application capabilities.

Since the launch of Namecoin in mid-2010, the altcoin ecosystem has grown exponentially. Currently, there are over 5,000 different altcoins on the market, each with its own unique characteristics.

According to data from Coinmarketcap, although the number of altcoins is very large, their total market capitalization accounts for only about 34% of the global cryptocurrency market, with the remaining 66% still belonging to Bitcoin. However, in the past 2-3 years, experienced investors’ capital has started shifting toward altcoin projects, causing much more volatile price movements compared to Bitcoin.

Types of Altcoin: Two Main Development Directions

The cryptocurrency community has classified altcoins into two main groups based on their functions and purposes.

Stablecoin - Price Stablecoin

This type of altcoin is designed to maintain a value equivalent to fiat currencies like USD or Euro at a 1:1 ratio. Stablecoins address the high volatility problem of cryptocurrencies by being issued and backed by a central organization.

The advantage of stablecoins is enabling quick international transfers with low costs, replacing expensive traditional bank transfer channels. Tether (USDT) is a typical example of a widely used stablecoin in cryptocurrency exchanges.

Digital Token - Digital Tokens

Most ICO altcoins are tokens circulated within decentralized applications (Dapps) built on Blockchain platforms or Smart Contracts. These tokens serve purposes such as payments, governance, or access to services within their ecosystem.

For example, EOS tokens are used for payments within applications developed on the EOS.io community, and UNI is the governance token of the DEX exchange Uniswap.

Notable Altcoins on the Market Today

Below are the most highly regarded altcoins in terms of liquidity, technology, and growth potential.

Ethereum (ETH) - Decentralized Application Platform

Ethereum is the second-largest altcoin by market cap, reaching over $70 billion in 2020. Launched in July 2015, Ethereum has become a large ecosystem with thousands of decentralized applications built on its platform.

Ethereum’s strength lies in its network designed to attract developers to create applications. As more applications launch, the demand for ETH tokens to pay for transactions on the network increases, putting upward pressure on the price.

Technically, Ethereum in 2020 improved its technology to handle 100,000 transactions per second, far surpassing Visa’s 65,000 transactions per second. This makes Ethereum a promising technology in the finance and banking sectors.

In terms of investment performance, ETH has experienced more price volatility than Bitcoin. From launch until 2018, ETH increased by 56,919%, and to date, ETH has risen by 7,748% compared to Bitcoin’s 2,107%.

Litecoin (LTC) - Faster Payments

Launched in 2011 based on Bitcoin technology but with speed improvements. While Bitcoin takes an average of 10 minutes to confirm a transaction, Litecoin only takes 2.5 minutes, four times faster.

During 2017-2018, LTC saw an impressive price increase of 9,791% from its launch, and to date, LTC has increased by 2,676%. However, despite its speed advantage, LTC has not achieved the same level of popularity as Bitcoin, with an average market cap of only around $12 billion, five times lower than Bitcoin.

Ripple (XRP) - Instant International Payments

XRP is the token of the RippleNet network, a global payment connection system that allows fast international money transfers without traditional bank fees. RippleNet is used by many major banks such as Bank of America.

XRP’s transaction speed is the fastest among all cryptocurrencies. However, it’s important to note that RippleNet users are not required to use XRP, so the network’s growth does not automatically lead to XRP price increases. Only when the demand for XRP truly rises will the price have the chance to explode.

Bitcoin Cash (BCH) - Bitcoin’s Improved Fork

Bitcoin Cash resulted from a hard fork of Bitcoin in 2017, when some mining groups disagreed with the new upgrade rules. Essentially, BCH and Bitcoin are very similar, but the main difference is that Bitcoin Cash has a larger block size, allowing it to process more transactions per block, thus enabling faster transaction speeds.

The BCH exchange rate was lower than BTC (around in 2020$300 , and BCHUSD’s volatility closely correlates with BTCUSD but with a smaller margin, making it suitable for daily payments.

Important Features to Know About Altcoin

Altcoins offer benefits but also carry risks:

• Namecoin is considered the first altcoin, launched in April 2011, but it did not gain widespread popularity and has almost ceased activity.
• Every day, hundreds of new altcoins are launched via ICOs on the market.
• Altcoins are improved versions of Bitcoin in one or more aspects.
• Many experts believe altcoins are unnecessary because they struggle to compete with Bitcoin’s popularity.
• For early investors, the altcoin market is a short-term speculation opportunity with high profits but also significant risks.

Comparison: Bitcoin Vs Altcoin

Why Consider Altcoins in Your Investment Portfolio?

Altcoins create new opportunities in the cryptocurrency market for many reasons:

Diversification: The fundamental investment principle is not to “put all eggs in one basket.” Holding several popular altcoins besides Bitcoin helps you stay involved in new developments in the crypto market.

Early Development Stage: New cryptocurrencies are in the early phases of their lifecycle, and no one can predict which will become the dominant technology in the future.

Profit Opportunities: The high volatility of altcoin prices creates numerous short-term trading opportunities for speculators seeking quick profits.

Effective Altcoin Investment Strategies

There are two main methods to profit from altcoins:

) Long-term Buy and Hold Strategy

This approach involves selecting promising altcoins for future growth and holding them for more than 1 year. The top five altcoins with high liquidity are good choices: Ethereum, Ripple, Litecoin, Bitcoin Cash, and Tether.

Investors buy tokens and store them in wallets, expecting prices to rise in the future for selling later. When prices drop due to economic shocks, it’s an opportunity to accumulate more.

###Day Trading Strategy(

Altcoins are highly volatile within a single day. For example, ETH can fluctuate 15%-30% in just one day. Using leverage, traders can generate profits of 1,500%-3,000% in a day.

With this strategy, you do not hold altcoins long-term but trade based on price movements. Profits can come from both rising and falling prices; the key is to identify the right timing and direction of the movement:

• On ICO day: Prices usually surge, so open buy positions.
• After the ICO phase: Prices often stabilize, prepare to sell when signs of volatility appear.

Criteria for Choosing Altcoins Before Buying

With over 5,000 altcoins, selecting the right ones is crucial. Here are the factors to consider:

Liquidity: This is the most important factor. High-liquidity altcoins are easier to buy and sell and have more rapid price movements. According to Coinmarketcap, the five most liquid altcoins are Ethereum, XRP, Tether, Litecoin, and Bitcoin Cash.

ICO Timing: Historically, most altcoins experience significant increases shortly after their ICOs. This is often a good opportunity to buy at low prices.

Beware of “Fake” Altcoins: Due to the lack of strict regulation in the crypto market, many scams create fake projects or networks with no real value to deceive investors. Reading the project’s White Paper and thoroughly researching the development team is essential.

Choose Reputable Exchanges: To trade altcoins, you need to select a trustworthy broker. With thousands of exchanges available, not all are safe. Choosing a reputable platform is vital to protect your assets.

Conclusion

Altcoins are an integral part of the modern cryptocurrency ecosystem, offering diverse investment opportunities and potential profits. However, investing in altcoins requires thorough understanding, balanced risk assessment, and continuous learning.

Whether you choose a long-term holding strategy or short-term trading, the most important thing is to maintain discipline, manage risks, and keep learning. The cryptocurrency market is still evolving, and altcoins will continue to play a significant role in the future of digital finance.