Bitcoin vs. Altcoins

Although Bitcoin (BTC) dominates the cryptocurrency market, many other competing digital assets are alternative coins or altcoins. With so many options available, investors must understand how each altcoin differs from Bitcoin and what it can offer in a portfolio.

Altcoins can think of as Bitcoin variants. In other words, developers create altcoins to improve the functionality of Bitcoin or to add features that Bitcoin does not have. However, not all cryptocurrencies are the same. While some alternative coins may be valuable to investors, others thrive solely on hype and speculation.

Many altcoins have seen meteoric rises this year, mirroring Bitcoin’s rally this year. Ethereum (ETH), Bitcoin’s main rival, has gained nearly 500 percent year to date. In comparison, the upstart Shiba Inu Coin (SHIB) has gained an incredible 380,000 percent in a year.

What Are Altcoins?

Altcoins are cryptocurrencies that exist alongside Bitcoin. Altcoins use Bitcoin as a benchmark because it was the first crypto-currency and has dominated it. It accounts for most cryptocurrency market capitalization.

Bitcoin, as the first cryptocurrency, established a model for how cryptocurrency projects should function. Alternative coin creators and developers wished to create different versions of Bitcoin based on what they perceived as lacking in Bitcoin’s platform. Ethereum, for example, is a technology that allows users to send cryptocurrency to one another. On the other hand, Cardano’s platform takes a research-intensive approach to build out its blockchain network.

Differences between bitcoin and alternative coins

Bitcoin has better investing fundamentals than the vast majority of altcoins, and it is fair to say. Bitcoin is the most popular cryptocurrency, having been purchased, held, and traded the most. It has a market capitalization of approximately $1.2 trillion, accounting for more than 60% of the total 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 make for each Bitcoin alternative, there is a high likelihood that the coins will eventually fade away. 

Investing in altcoins

When Bitcoin rises, altcoins tend to increase as well, and when Bitcoin falls, altcoins tend to fall as well. However, the rises and falls of altcoins are far more volatile than those of Bitcoin.

Nonetheless, in a market where Bitcoin is trading near record highs, some investors see upside in altcoins.

Investors interested in diversifying their holdings of altcoins should consider the risks associated with these digital assets. There are over 10,000 cryptocurrencies, so the chances of selecting one of the few that will be around for a long time are slim.

Suppose you choose the right altcoins, especially the smaller ones. In that case, they have the potential to provide exponential returns on your initial investment. A Solana token now worth over $200 cost just $2 a year ago. On the other hand, most altcoins will never take off and will often lose what little value they have if the project is not maintained.

Because altcoins are high risk, experts advise U.S. News to look for alternatives that are high in quality and have strong fundamentals. Risk-averse investors should look for altcoins with the potential for future widespread utility, considering the size of their market cap and the magnitude of price swings.