Bitcoin has inspired countless altcoins since 2017. Four years ago, thousands of Bitcoin investors saturated the market and created the need to diversify the crypto space. In turn, this has led to the creation of alternative coins to BTC, including Cardano (ADA), Chainlink (LINK), and Polkadot (DOT).
While they don’t share Bitcoin’s glory, they’ve earned theirs over the years. Additionally, many have increased value from a few to hundreds of dollars. Hence, investors are always looking for the next high performing altcoin.
Unfortunately, with so many cryptocurrencies on the market, it doesn’t feel easy to choose the next altcoin. In this article, we will explore some things you should know about altcoins that will perform well.
What are Altcoins?
Altcoins are cryptocurrencies other than Bitcoin (BTCUSD). They share the same characteristics as bitcoin but differ in other respects. For example, some altcoins use different consensus mechanisms to generate blocks or verify transactions. Or they differentiate themselves from Bitcoin by offering new or additional functions such as smart contracts or low price volatility.
As of April 2022, there are over 18,000 cryptocurrencies. Bitcoin and Ether alone accounted for almost 60% of the total cryptocurrency market as of April 2022, according to CoinMarketCap. Since they typically originate from Bitcoin, the altcoin price action mimics bitcoin’s trajectory. However, analysts say that the maturing of the cryptocurrency investment ecosystem and the development of new markets for these tokens will allow altcoin price movements to be independent of Bitcoin trading signals.
Types of Altcoins
Altcoins come in different flavours and categories based on their functionality and consensus mechanism. Here are important types of Altcoins:
As the name suggests, mining-based altcoins are mined. Most mining-based altcoins use PoW, a method in which the system generates new coins by solving puzzles that create blocks. Examples of mining-based altcoins are Litecoin, Monero, and ZCash. Most of the top altcoins in early 2020 fall into the mining category. Alternatives to mining-based altcoins are pre-mined, often as part of an Initial Coin Offering (ICO). Such coins are not generated algorithmically but distributed before being listed on the cryptocurrency market. An example of a pre-mined coin is Ripple’s XRP.
Trading and the use of cryptocurrencies have been characterized by volatility since their inception. Stablecoins aim to reduce this overall volatility by pegging their value to a basket of commodities such as fiat currencies, precious metals, or other cryptocurrencies. The basket is intended to act as a reserve for redemption holders should cryptocurrencies fail or encounter problems. Stablecoin price volatility is not meant to be outside of a narrow range.
Notable stablecoins include Tether’s USDT, MakerDAO’s DAI, and USD Coin (USDC). In March 2021, payment processing giant Visa Inc. (V) announced that it would begin processing some transactions in USDC via the Ethereum blockchain on its network, with more stablecoin settlement capabilities planned for later in 2021.
Security tokens are similar to exchange-traded securities, except they are digital. Security tokens are similar to traditional shares in that they typically promise equity in the form of ownership or the payment of dividends to the holder. The prospect of such tokens increasing in value is an important factor that entices investors to invest their money.
In 2021, bitcoin wallet firm Exodus completed an SEC-qualified Reg-A+ token offering, selling $75 million in common stock to be tokenised on the Algorand blockchain. This is a historic event as this is the first time that digital asset security has offered participation in a US-issuing company.
As the name suggests, meme coins are inspired by a joke or silly take on other popular cryptocurrencies. They usually go viral within a short period of time and are often hyped online by prominent cryptocurrency influencers and retail investors trying to cash in on short-term gains.
For example, Elon Musk, CEO of Tesla and cryptocurrency enthusiast, frequently posts cryptic tweets about leading meme coins Dogecoin (DOGEUSD) and Shiba Inu, which often change their prices dramatically. After Musk posted a photo of his pet Floki (a Shiba Inu puppy) to Tesla in October 2021, the Shiba Inu surged 91% in 24 hours. Many have mentioned that the sharp rise of these particular altcoins in April and May 2021 is “meme coin season”, with hundreds of cryptocurrencies generating huge percentage gains based on sheer speculation.
Utility tokens are used to provide services within the network. For example, they can be used to purchase services, pay network fees, or redeem rewards. Unlike security tokens, utility tokens do not pay dividends or fractional equity. An example of a utility token is Filecoin, which is used to buy network storage space.
Things to consider when choosing the right altcoin
1. The first step in choosing an altcoin is due diligence. For example, you can consult other investors who have experience trading that particular altcoin.
2. You can view the altcoin’s white paper or learn about the roadmap and goals of the project.
3. You can ask questions directly to the developers of the altcoins.
4. A good starting point for your research is historical charts on the internet. You can learn about the history, circulation and market cap of altcoins. Due to the volatility of cryptocurrencies, the current price is also important but not a deal-breaker as it could change soon. Please stay away from altcoins that have seen their market value drop significantly.
5. Know the underlying technology: Many altcoins generally enter the crypto market simply as copies of Bitcoin. Instead of offering newer, better and more innovative alternatives, they led the project to a dead end. After all, emulating king coin’s success isn’t as easy as it seems.
However, some altcoins have managed to change the mindset and make up for some of Bitcoin’s shortcomings. Ethereum, for example, uses advanced technology to make popular financial resources better and safer, rather than replacing them like Bitcoin. This altcoin is also the native asset of the massive blockchain that underpins the development of other altcoins. Hence, it deserves a high value and a market cap surpassed only by Bitcoin.
When choosing a successful altcoin, it’s important to consider the real-world utility of the underlying technology. Ask yourself the following questions:
- What financial problems is she trying to solve?
- Is the underlying technology likely to be adopted by the mainstream?
- Does it have a reasonable chance of disrupting the financial world?
If it doesn’t answer all of these questions, it’s best to stay away.
6. Check altcoin issuers: A team can make or break their product or business. No matter how powerful the underlying technology is, the team behind each cryptocurrency predicts its success. A solid visionary team creates a more robust encryption solution with a clear strategy as a general rule of thumb.
So if you are considering a winning altcoin, read the whitepaper carefully. And ask yourself:
- Are you related to the vision or what the crypto asset is trying to achieve?
- Will it make the bargain?
The Crypto Whitepaper is a blueprint for the main goals of cryptocurrencies and how to achieve them.
Also, you want to look at the list of altcoin founders and find out who is in the crypto space. After all, the technical team is the backbone of every altcoin. Additionally, it is primarily responsible for the direction and overall success of the coin.
Study each founder and try to understand their mindset to see if they can create a successful altcoin. Also, think of the leadership team as a more important part of the altcoin development community. The leadership team must be strong-willed and active on different social media platforms. Visit networks like GitHub, Reddit, and Facebook to see what they have to say about your favourite altcoins
7. Analyze Daily Trading Volume: Checking and evaluating Altcoin daily trading volume is an easy task, especially on platforms like CoinDesk and CoinMarketCap.
If you find that few people trade the altcoin and the volume is low, in this case, stay away from it. This means that it offers no direct solution or is unpopular for the financial sector.
Daily volume helps show how much cryptocurrency has been traded in the last 24 hours. It helps new and potential investors identify demand for specific altcoins. Investors can also assess the future impact of altcoins.
However, it is important to note that high trading volume means a popular crypto asset. Sometimes even the least popular coins have a higher trading volume than the more reputable coins. Therefore, you want to monitor and evaluate the trading volume for several days before deciding.
8. Watch out for possible ICO events: An Initial Coin Offering (ICO) is an event where digital currency companies raise working capital and issue new cryptocurrencies. They work like an exchange where investors bet on crypto assets that will likely generate a high ROI.
When deciding on a winning altcoin, it is best to consider ICO offerings. This will help you understand which coin will be successful and give you a return on your investment. Consider the altcoins that stand out and often attract large numbers of investors.
9. Consider less popular cryptocurrency trading platforms: If you want to discover a lesser-known but promising altcoin, consider unknown crypto exchanges. This is because powerful exchanges are less likely to list newer tokens.
However, you should ensure that the platform is trustworthy and not a rogue site that wants to steal your money. Do your research to find out who is behind the exchange platform. Evaluate the team’s experience and determine their credibility in the crypto space.
Hundreds of thousands of coins are available in the crypto space. Therefore, choosing the most profitable provider can be overwhelming. Luckily, this article should help you with things you need to know about high-performing altcoin that fits your portfolio.