Understand Clearly What Altcoin Is and How to Invest Effectively

In the cryptocurrency ecosystem, if Bitcoin is the foundational building block, then Altcoin is the architectural structure built upon that foundation. But what exactly is Altcoin? How does it differ from Bitcoin? And should you include Altcoin in your investment portfolio? This article will answer each question.

What Is Altcoin? Detailed Definition

Altcoin is a term referring to cryptocurrencies that are alternatives to Bitcoin. Unlike Bitcoin, which was created in 2009, Altcoins started appearing around mid-2010, with Namecoin being a notable example launched in April 2011. The main characteristic of Altcoins is that they are based on blockchain technology similar to Bitcoin but have been improved in features such as processing speed, consensus mechanisms, or application capabilities.

To date, the market has witnessed a surge of over 5,000 different types of Altcoins. However, in terms of market capitalization, Bitcoin still dominates with 55.097% of the global cryptocurrency market share, while all Altcoins combined account for approximately 34% according to CoinMarketCap. This difference clearly reflects the long-term trust the market places in Bitcoin.

Nevertheless, the capital flow trend among seasoned investors over the past 2-3 years has shown a gradual shift toward Altcoins, leading to much more volatile price movements compared to Bitcoin. This is also why Altcoins have become a favorite tool for traders seeking short-term profit opportunities.

Types of Altcoin: Two Main Categories

The cryptocurrency trading community typically divides Altcoins into two main groups based on their purpose and technical features.

Stablecoin - Price-Stable Cryptocurrency

Stablecoins are Altcoins designed to maintain their value at or near a fiat currency such as USD or EUR. The strength of Stablecoins lies in their ability to address the significant volatility issues in cryptocurrencies. By being issued and backed 1:1 by a central entity with a stable value, Stablecoins create a safe bridge between the crypto world and traditional financial systems.

The practical benefits of Stablecoins are clear: enabling fast international transfers at low cost, instead of waiting for costly traditional bank transactions. Tether (USDT) is the most well-known representative of this type of Stablecoin, widely used on exchanges to support investment activities.

Digital Token - Digital Asset Token

Most ICOs in the market issue tokens used in decentralized applications (DApp) built on blockchain platforms or smart contracts. These tokens are called Digital Tokens and serve specific functions within their own ecosystems.

For example, EOS tokens are used to pay for development services within the EOS.io community. Each token is designed with different characteristics and utilities, from governance (governance token) to payment (payment token) or access rights (utility token).

Notable Altcoins to Watch

Ethereum (ETH) - Decentralized Application Platform

Ethereum launched in July 2015 and quickly became the second-largest Altcoin by market cap. The current ETH price is $2.97K with a 24-hour change of +1.56%, and a 24-hour trading volume of $435.30M.

Ethereum’s biggest difference from Bitcoin is its ability to run complex programs via Smart Contracts. This platform has become the most popular environment for developing decentralized applications, attracting thousands of developers to build the DApp ecosystem.

Ethereum’s technical advantage is evident: in 2020, it upgraded its technology to handle 100,000 transactions per second, far surpassing Visa’s 65,000 transactions per second. Since its launch, the price has increased by 7,748%, demonstrating strong growth potential compared to Bitcoin (up 2,107%).

Litecoin (LTC) - Faster Transaction Solution

Launched in 2011 based on Bitcoin technology but optimized for faster transactions. Litecoin’s average transaction time is 2.5 minutes, compared to Bitcoin’s 10 minutes. Currently, LTC is valued at $77.35 with a 24-hour change of +1.29% and a 24-hour trading volume of $2.95M.

Despite its superior features, Litecoin has not achieved the same level of popularity as Bitcoin, with an average daily trading volume of about $12 billion, which is five times lower than Bitcoin. However, traders still consider Litecoin a reliable choice due to its low transaction costs and fast speed.

Ripple (XRP) - Global Payment Network

XRP is a token associated with the RippleNet network, a global payment system used by many major banks such as Bank of America. The current XRP price is $1.88 with a 24-hour change of +1.02%, and a 24-hour trading volume of $67.63M.

Ripple’s advantage lies in its fastest transaction speed among cryptocurrencies, enabling international transfers without traditional fees. However, an important note is that the development of RippleNet does not necessarily mean XRP’s price will increase, as users can choose not to use the token. The true growth of XRP depends on its adoption in real-world transactions.

Bitcoin Cash (BCH) - Bitcoin Fork with Larger Block Size

Bitcoin Cash was created from a Bitcoin hard fork in 2017 when some mining groups disagreed with recent upgrades. Currently, BCH is valued at $607.71 with a 24-hour change of +3.86% and a 24-hour trading volume of $5.89M.

Essentially, Bitcoin Cash is similar to Bitcoin but with a key difference: each block has a larger capacity, allowing it to process more transactions faster. This makes Bitcoin Cash more suitable for daily transactions compared to Bitcoin. Price fluctuations of BCH and BTC are closely correlated, but BCH tends to be less volatile, offering relative stability.

Comparing Altcoin and Bitcoin: Pros and Cons

What is Altcoin if not an inheritance and improvement over Bitcoin? The comparison below clarifies the differences:

Bitcoin is built on its own technology platform with high-level SHA-256 encryption, providing extremely strong security. Its supply is limited to 21 million coins, so increased demand directly drives up the price. Bitcoin has the highest liquidity due to its widespread popularity, but slow transaction speed is a major drawback. Mining Bitcoin also requires specialized high-performance hardware and significant costs.

Ethereum inherits security features from Bitcoin but adds smart contracts and DApp platforms. Its widespread application is due to its flexibility, but since there is no supply cap, it faces inflation risks.

Litecoin is built on blockchain technology with significant improvements: faster transaction speed and lower costs, but its liquidity is much lower than Bitcoin.

Ripple (XRP) developed by RippleNet offers the fastest transaction speed, but the connection between XRP and the network is not tightly linked, so network growth does not automatically lead to price increases.

Why Invest in Altcoin?

The primary reason is portfolio diversification. Savvy traders always seek new investment tools beyond traditional assets, and Altcoins present a fresh opportunity.

Second, new cryptocurrencies are still in early development stages. No one can predict with certainty which digital currency will be widely adopted in the future. Holding a diversified portfolio of prominent Altcoins ensures you stay in an optimal position as the market evolves.

Third, Altcoins generate significant price volatility, creating numerous trading opportunities. Professional traders can exploit this volatility to profit, whether the market is rising or falling.

Effective Altcoin Investment Strategies

Buy and Hold Strategy (Hold)

This approach is suitable for long-term investors. You select several promising Altcoins (such as ETH, XRP, LTC, BCH, USDT) and purchase to hold for the long term, typically over 1 year. During market downturns, these investors continue accumulating at lower prices, preparing for the next rally.

###Day Trading Strategy (Day Trading)

Altcoins are ideal tools for day trading due to their high volatility. For example, ETH can fluctuate 15-30% within a day, allowing day traders to generate high profits. The key to success is accurately identifying the timing and direction of strong price movements.

Some good trading times:

• ICO Day: Prices often surge, making it a good time to buy
• Post-ICO trading phase: Prices tend to stabilize due to lack of demand, presenting opportunities to sell when signs of volatility appear

Factors to Consider When Choosing Altcoin

With over 5,000 Altcoins on the market, selecting the right one is a major challenge. Here are important criteria:

Liquidity: This is the most critical factor. The higher the liquidity of an Altcoin, the easier the trading and the more rapid the price movements. According to CoinMarketCap, the top 5 most liquid Altcoins are Ethereum, XRP, Tether, Litecoin, and Bitcoin Cash.

ICO Timing: Historical data shows most altcoins experience strong growth in the days following their ICO. This is an opportunity to buy Altcoins at the best prices.

Beware of “Fake” Altcoins: Since there is no government oversight, developers can easily create fake applications or tokens with no real value. Carefully reading the White Paper and researching the issuing company before buying are essential steps to avoid scams.

Choose Reputable Trading Platforms: Not all cryptocurrency exchanges are safe and trustworthy. Selecting a reliable platform is necessary to protect your assets.

Conclusion

What is Altcoin? They are the next innovations in the cryptocurrency journey, each with its own purpose and advantages. Whether you choose a long-term buy-and-hold strategy or day trading, understanding the characteristics, pros, and cons of each Altcoin is the foundation for smart investment decisions. Always remember that diversification and risk management are key to success in the cryptocurrency market.