July 2, 2023 The birth of Bitcoin was nothing less than revolutionary. It was the first digital asset of its kind that, while starting slowly, opened eyes globally once the public began to understand its technology.
What started as an experiment has birthed an entire ecosystem of digital currencies that aim to shape the financial system into a decentralized yet transparent society.
Like all great things, the pioneer in the space, Bitcoin, has led to amazing creations that solve real-world problems and provide utility to areas none thought were possible.
This article will examine Altcoins, their potential, and their risks.
“Altcoins” – or alternative coins to Bitcoin- are projects created in cryptocurrency after Bitcoin. While Bitcoin was primarily designed to solve shortcomings in the financial industry, altcoins were created to solve problems not limited to just the financial sector.
They encompass many digital assets that aim to provide solutions and improvements over Bitcoin’s limitations. Altcoins can differ in their underlying technology, consensus mechanism, purpose, and target audience. Some of the popular altcoins include Ethereum (ETH), Ripple (XRP), Litecoin (LTC), and Cardano (ADA). Each altcoin brings its features and uses cases to the table.
Currently, there are well over twenty thousand altcoins spread across the industry. Some are limited to specific countries or regions for purchase, while others are limited to the end user’s technical capabilities or methods used to acquire them.
Before diving into this section, it may be best to say that the potential of altcoins is endless. For instance, what was said to be impossible just a few short years ago for altcoins, is already being implemented and used in the lives of many.
In short, the only limits that altcoins have, are the boxes they are placed in – with the right perspective and approach, anything is possible for them.
Altcoins offer investors an opportunity to diversify their cryptocurrency portfolio. While Bitcoin remains the flagship cryptocurrency, altcoins allow investors to spread their risk across different digital assets. Individuals can benefit from potential growth in specific sectors or technologies by investing in altcoins.
The stock market has many subsectors across various industries, but the same applies to altcoins. In addition, just as the subsectors in the stock market are their thriving ecosystem seeing booms and price fluctuations at different times, the same is true for altcoins.
Many cryptocurrency investors seek to purposefully select investments in different areas to capitalize on these price and market momentum shifts as best as possible. For instance, metaverse cryptocurrency projects went on a significant upwards trend for some time while others struggled to keep up.
Then, the “P2E” or play-to-earn coins took over while the others waited for their turn. If an investor was all in on just one of these sub-niches, they might have missed the momentum or “upside” of the others. Instead of waiting to see “if” theirs would soon experience a favorable price increase, they may have been better off investing in coins spread across the various sectors.
Many altcoins focus on advancing blockchain technology beyond Bitcoin. Ethereum introduced the concept of smart contracts, enabling developers to build decentralized applications (dApps) on its platform. This innovation has revolutionized various industries. Altcoins continually push the boundaries of blockchain technology.
Some altcoins are attempting to revolutionize the health industry, such as ones that reward you for being active and eating healthy. Other projects are geared toward philanthropic endeavors yet intertwine complex technological codes and platforms to streamline the process.
Altcoins often target specific industries or sectors, providing tailored solutions. For example, Ripple aims to revolutionize cross-border payments, while Chainlink focuses on providing decentralized oracle services for smart contracts. These altcoins address real-world problems and offer unique value propositions that can potentially disrupt traditional systems.
As previously mentioned, it seems as if no “traditional” industries, such as healthcare, automotive, and real estate, just to name a few, are yet to have an altcoin project attempt to improve on its process. While many altcoins are competing to improve the same sector, they (for the most part) have their unique approach to solving those problems.
Even newer niches, such as artificial intelligence, are spearheaded by altcoins projects, with some going as far as integrating their technology with AI to gain competitive advantages over other projects.
Altcoins, particularly those in their early stages, have the potential for significant returns on investment. Like all investments, cryptocurrency comes with its case of volatility which is promising regarding potential profits. Altcoins can experience sudden price fluctuations making them extremely appealing to investors of all backgrounds and experiences, especially those who may be limited on funds.
Investors who identify promising projects early on can benefit from substantial gains if the altcoin gains traction and adoption. These coins (and even the stage of the cryptocurrency era we are in) are often compared to the dot com era that gave birth to giant tech companies such as Apple, Amazon, and Microsoft, just to name a few.
Of course, with any venture (old or new) come risks.
Yes, volatility is great for traders, but it can also be off-putting for those needing to be more experienced. Even if one is not subject to direct exposure to such volatility, just hearing about the case studies can be intimidating.
Planning is vital to the investors’ success with any investment as it helps provide structure and a map to follow and focus on. With a solid plan and vision, the movements occurring over the short term are less likely to affect the trader negatively.
Volatility can be great if you plan to trade in those conditions. Usually, a big move in the markets (either way) brings volatility, and if you have a go-to plan should that scenario play out as you intended, you will be ahead of the crowd.
The cryptocurrency market, including altcoins, is known for its extreme volatility. Prices can experience drastic fluctuations within short periods, leading to potential gains or losses. Altcoin investors must be prepared for this volatility and be willing to tolerate the associated risks.
Unlike traditional financial markets, cryptocurrency is still relatively unregulated in many jurisdictions. The lack of regulation is viewed as a blessing to some and a hurdle to others. Many are attracted to this space solely due to the lack of regulations and overall government oversight. Then, some believe that the only way towards mass adoption is by having strict regulations.
However, it is common to see exchanges enforce KYC or know your customer. This is part of the verification process where the platform asks the registering users questions like their date of birth, address, legal name, and sometimes even photo identification.
Either way, It is essential to conduct thorough research and always do your due diligence on the altcoin, the problem they are attempting to solve, and perhaps the country (or countries) they are operating in and under what business license or business structure.
With over twenty thousand projects, a fair share of projects currently exists in this space.
The altcoin market is highly competitive, with new projects constantly emerging. While this competition drives innovation, it also leads to saturation and dilution of potential investment opportunities. Many altcoins fail to gain traction or provide real-world utility, making it crucial for investors to evaluate projects carefully before investing.
Altcoins, especially those with smaller market capitalizations, can experience limited liquidity. This lack of liquidity makes buying or selling altcoins at desired prices easier, potentially resulting in favorable trade execution. It is important to consider liquidity factors for each project before making any investments.
Many factors come into play for available liquidity, such as the cryptocurrency exchange you use to trade said altcoin. On a larger scale, sometimes it can come down to the overall market conditions and the sentiment surrounding it.
Many stories of altcoin projects experienced little to no volume or activity for extended periods (months or even years), only to return and gain hundreds and sometimes thousands of percentages in price movement.
Growing pains occur in every new venture we pursue, including investing in cryptocurrencies and altcoins. While risks are associated (as with anything), this shouldn’t be the determining factor that strays you away from further educating yourself in the immense opportunities within this sector.
You’ve likely heard stories like, “I should have invested in Apple in the day!” There’s no shortage of these stories, but there are new opportunities that may perhaps be the next Apple of our time, but those same people will more than likely make the same mistake again. They commonly avoid such opportunities because they involve due diligence and risk-taking.
While It would be impossible to avoid risk altogether when it comes to investing, try to mitigate as much as possible by planning, performing due diligence, and taking time to learn.
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