Bitcoin ushered in the cryptocurrency era in 2009 and quickly became the name people talk about digital currencies. In fact, it has dominated the booming scene so much that every other cryptocurrency is considered an “altcoin,” an alternative to Bitcoin. The name lives on, even though the original digital currency has thousands of competitors today.
Here are the altcoin basics to watch this year and whether or not altcoins will overtake Bitcoin.
What are altcoins?
Altcoins are alternative cryptocurrencies to Bitcoin, which was once the only cryptocurrency itself. In the early days, Bitcoin dominated the space so much that every other competitor was defined as the original cryptocurrency. It’s Bitcoin – and everything else. So things that aren’t Bitcoin are somewhat mockingly called altcoins, or perhaps even less kindly sh*tcoins, in the rhythm of the original digital currency.
So an altcoin is any cryptocurrency that is not Bitcoin. This definition made a lot of sense in the early days of cryptocurrencies, as Bitcoin garnered most of the market’s attention and competitors invented dozens, if not hundreds, of alternative coins. Today, some experts estimate the number of individual cryptocurrencies to exceed 19,000. Therefore, defining the crypto space as “Bitcoin and everything else” makes less sense than ever.
However, according to CoinMarketCap.com, Bitcoin remains the largest cryptocurrency, with a market cap — the value of the total number of coins in existence — more than double that of the second-largest player, Ethereum. The size of the other players decreases rapidly from there.
Types of Altcoins
With thousands of cryptocurrencies to choose from, speculators looking for altcoins are spoiled. However, so many trade clusters revolve around the largest players and those with some of the best technical specifications, such as B. Fast trading times.
Mining based coins
Mining-based coins circulate through a network of computers, solving complex mathematical problems that often require a lot of energy. The world’s largest cryptocurrency – Bitcoin – is a mining-based coin, but so are many altcoins.
A stablecoin is a cryptocurrency whose value is pegged to the value of another asset, usually the U.S. dollar. Stablecoins track the underlying asset and attempt to maintain the price of the coin relative to the currency. Typically, stablecoins are backed by assets such as real dollars (though usually bonds and other assets) that provide the stablecoins with their real-world monetary base. Examples of stablecoins are Tether and USD Coin.
Despite their moniker, stablecoins are sometimes unstable. TerraUSD, a dollar-pegged stablecoin, made headlines in May 2022 when it fell to a few cents per dollar. The coin’s automatic stabilizer was unable to keep up with orders from traders who wished to sell their positions.
A security token is a token that represents a partial interest in another asset. For example, a piece of art might have a security token that divides the ownership of that asset and verifies its ownership. Alternatively, a company can represent its ownership through a security token. Thus, this type of token could enable more traditional securitization of assets.
Memecoins are a cryptocurrency that has drawn public attention, possibly through social media or tweets from celebrities like Tesla CEO Elon Musk. Memecoins often have a lottery-like side, with prices rising quickly and then falling sharply. Popular memecoins are Dogecoin and Shiba Inu.
Here are the top 10 cryptocurrencies as of August 5, according to CoinMarketCap:
- USD Coin
- Binance Coin
- Binance USD
Of course, these rankings can fluctuate, often with a lot of volatility, as new coins are mined for each currency and the price of the currency rises or falls. Below are more details on the top cryptocurrencies by size.
What to Consider Before Buying Altcoins
If there’s anything riskier than investing in the best cryptocurrencies, it’s buying relatively unknown altcoins. Here are a few things to consider before jumping into altcoins and hoping for lottery-like payouts:
- Cryptocurrencies are driven entirely by emotions. Since cryptocurrencies are generally not backed by the underlying company’s assets or cash flow like stocks, it is driven solely by sentiment. Sentiment can shift from extreme optimism to depressing pessimism, meaning that altcoins rely on traders to become or become more optimistic when prices are about to rise.
- Investors are busy finding the most popular coins. Since cryptocurrencies are driven by emotion, investors have crowded into the most popular coins, focusing on Bitcoin, Ethereum and a relatively small number of others. While altcoins pop up every now and then – Dogecoin or Shiba Inu are purebred examples – there are literally thousands of others unaware. This means that if an altcoin makes its way into the doghouse, it may never catch on again, costing most or even all of your investment.
- Do you have money you can afford to lose? Given the extreme risk of altcoins and their volatility, it is important to ask if you are only investing in money you can afford to lose. Cryptocurrencies and other financial markets are not where you invest your rent or other needed funds.
- Focus on the technical capabilities of altcoins. If you want to invest in altcoins, research their technical capabilities. For example, some altcoins like Solana have surged in price because they offer high functionality at low cost. The characteristics of a cryptocurrency can help it stay at the forefront of the public imagination and therefore an attractive trading tool for traders.
When buying a highly speculative asset like cryptocurrencies, it is important to understand that you may lose your entire investment. At the very least, traders should expect extreme volatility in the market in 2022.
Thousands of altcoins are gaining popularity. While no single coin can replace Bitcoin as the top cryptocurrency (for now), altcoins as a group should continue to take market share away from the leaders, even as the overall “crypto pie” continues to grow.