What investors must know about altcoin trading

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Bitcoin became the world’s first cryptocurrency by virtue of its creation and market capitalization. However, after the major cryptocurrency are several minor ones that are introduced after Bitcoin. The price of these altcoins is mostly moved by the price of Bitcoin. Nevertheless, while some altcoins can make investors extremely rich, some are mere scams.

There are more than 5000 cryptocurrencies apart from Bitcoin. Then, how do you tell the wheat from the shaft in the esoteric world of virtual assets? There is a lot of media about altcoin even though only a few of them are well known. Before you fall for false advertising and influencers’ tout about an altcoin, there are certain things you must know.

What is an altcoin?

Any cryptocurrency that was created after Bitcoin is an alternative coin. This is usually called “altcoin” or “shitcoin”. Altcoins have a market capitalization of about $1 trillion and represent 63 percent of the cryptocurrency market. Many altcoins were created to challenge the domineering position of Bitcoin by providing solutions to the issues with Bitcoin. Other altcoins are a fork of Bitcoin and they share the Bitcoin algorithm as a peer-to-peer cryptocurrency. Some altcoins aim to have the same value as fiat currencies or commodities such as precious metals. These altcoins are known as stablecoins and they include Tether (USDT), USD coin (USDC), Binance USD (BUSD) among others.

Although it is not popular among crypto traders, the first altcoin created was Namecoin. Namecoin was created in 2011 as the first altcoin that was forked from Bitcoin to a decentralized domain. Namecoin was made with the same proof-of-work algorithm used in Bitcoin software. After Namecoin, Litecoin (LTC) was also made in 2011 but with clear divergence from Bitcoin. Instead of the 21 million cap production of Bitcoin, the total Litecoin that can be produced is 84 million. In addition, Litecoin uses a faster and simpler transaction processing producing about four times as many as Bitcoin. That is, Litecoin can be mined in 2.5 minutes as opposed to 10 minutes of Bitcoin. Therefore, Litecoin became popular as a worthy if a lesser alternative to Bitcoin. Litcoin gave way to Peercoin, Dogecoin, Ether, and many others.

Why are some altcoins dead or inactive?

Investors must know that many altcoins are no longer active today. Thousands of coins have failed despite the initial launch and the developers’ promises of future gains to prospective investors. One of the reasons for the failure of most altcoins is the lack of unique purpose or real-world applications. For altcoin to be able to stand the test of time it must be created with a unique feature in mind. This can prove difficult because altcoins have traversed simple means of transaction to a decentralized computing platform, loyalty rewards, and data sharing.

Should you invest in altcoins?

It is a generally known fact that volatility affects digital assets. Altcoins, just like Bitcoin, are no exemptions from the market turbulence. As it is easy to make money from altcoins, it is equally easy to lose money. Although Ethereum and Dogecoin are two of the most popular altcoins, especially due to the publicity surrounding them (Dogecoin) and their market capitalization (Ether), there are many others gaining traction in recent times. Visit BestBitcoinExchange to see the list of altcoins.

The role influencers play in the price of altcoins affects the price of many altcoins. For instance, Dogecoin was largely unknown until the end of January 2021 when the coin suddenly rose by about 216%. Similarly, Shiba Inu recently surged over 400% due to a tweet by Elon Musk to become the 12th largest cryptocurrency by market capitalization. While these might be bubbles about to bust, many people are making money from these unprecedented gains.

Despite the attractive nature of the gain experienced in altcoin, the crypto market remains a wilderness without regulation. Therefore, it is easy to fall prey to Ponzi scams when looking for altcoins to buy. A case in point is Onecoin where many investors lose millions of dollars. Investors were told to buy training manuals which they will further sell to other prospective investors. People fell victim to this fraud and many others which promised huge wealth to altcoin investors knowing they cannot deliver. Many altcoins are elaborate scams designed to deceive investors who are looking to make quick money from cryptocurrency. Furthermore, the sudden drop in price has cost many traders millions of dollars in investment.

Therefore, before you invest in any altcoin ensure you do adequate research of the project from the Initial Coin Offering (ICO) stage. Know the developer and the originator of altcoin. Also, get answers to the following questions:

  • What are the missions of the altcoin?
  • Does it have a plan for future growth or is it just a bubble that will to bust?
  • Was the altcoin created for a unique purpose?
  • Does it solve any real-world problem or have real-world applications?
  • Which exchange is trading the altcoin? Is it reputable?

Altcoin trading can provide a way of diversifying investment portfolios if done properly. This year looks like altcoin season and investors can make a horde of money by betting on the right coin. However, you must perform your due diligence well before you buy any altcoin in order not to get burned. More importantly, invest money you can afford to lose in altcoins so you will not run into debt if the market crashes.

Story by Miriam Jensen

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