Cryptocurrency prices have been moving upwards again recently. As usual, the increasing prices attract new entrants to the market. These newcomers have almost certainly heard of Bitcoin and probably a few altcoins. However, what they probably don’t know is which is a safer bet.
In the following article, we’ll address the investment case for both altcoins and Bitcoin. By the end of it, you should have a decent understanding of which is more likely to make you money over the rest of 2020.
Just don’t take any of this as investment advice. Cryptocurrencies are notoriously volatile and even Bitcoin, the most stable of them, could theoretically lose all of its dollar value in a short amount of time.
What are Altcoins?
Before we talk about investing though, let’s verify that you understand what is meant by an altcoin. When most folks in the cryptocurrency industry talk about altcoins, they mean any cryptocurrency that isn’t Bitcoin. As the industry has exploded over the years, this has given rise to many different cryptocurrencies that strive to serve different purposes.
Types of Altcoins
There are now more than 6,000 digital currencies listed on sites like CoinMarketCap. Given that only Bitcoin is not considered an altcoin, there is a tremendous variety among the so-called alternative coins. We define some of the main distinctions between them below.
Coins vs Tokens
Although all non-Bitcoin digital currencies are deemed altcoins, some are technically not digital “coins” at all. To be precise, no cryptocurrency is truly a “coin” but that’s the name given to a certain class of digital assets.
When we use the term “coin” in relation to cryptocurrency, we specifically mean cryptocurrencies that are native to a blockchain. Bitcoin was the first “cryptocurrency coin” but today there are many others that have their own network.
- Ether (on the Ethereum network);
Distinct from these “cryptocurrency coins” are “tokens”. Tokens are cryptocurrencies that were issued on other networks. Tokens can be issued on any platform that allows for their creation. These include networks like Ethereum, NEO, Cardano, Tron, and others.
There are also different use cases for digital currencies these days. Bitcoin, for example, has carved a niche as a sort of digital gold. It has a fixed ultimate supply of 21 million units and many believe it will overtake the shiny precious metal as a planetary store of value one day.
Other digital currencies attempt to solve some perceived problems with Bitcoin. The most common is the speed of transfer. Bitcoin is focused on security — hence, it makes a good digital gold. The robust security also makes it rather slow and can mean that transaction fees are high. Cryptocurrencies focused on speed, such as Dash and Litecoin, compromise a little on this security model to enable quicker transactions for lower fees. This makes them fit for day-to-day spending.
Another class of digital currencies is smart contract platforms. They allow for the creation of decentralized applications. These applications have a lot of promise to improve the digital processes we engage in on a daily basis. But, aside from the decentralized financial boom at the moment, they have delivered little so far. In the future, they could well be very important networks. Many of the tokens work within these decentralized applications, performing various roles.
Privacy coins are the third class of digital currencies. Bitcoin, contrary to the belief of many, is not entirely private. Transactions made exist forever on the Bitcoin blockchain. Thanks to the likes of Chainalysis, it’s possible to link some Bitcoin transactions with individuals. As the name suggests, privacy coins, like Monero or Zcash, have been designed to obscure any trace of identity of both a sender and a receiver. Although many analysts think greater privacy for cryptocurrency is necessary, many regulators around the world disagree. If any class of cryptocurrency was to be completely outlawed, it’d probably be a privacy coin.
Bitcoin: A More Secure Bet?
Bitcoin has stood the test of time for 11 years now. While different altcoins have come and gone, Bitcoin has moved from strength to strength. Its rock-solid security has attracted many investors. This is because the network is strong, and it’s the least likely of any cryptocurrency to suddenly have a change in rules that ruins its entire value proposition.
Bitcoin mining provides this security and there is a larger miner network with Bitcoin than you’ll find with any altcoin. Being the most secure network, many people also feel Bitcoin is the safest investment.
Bitcoin’s main value proposition is its finite supply. There will only be 21 million Bitcoin ever. The network functions almost as it did 11 years ago and this stability is one of its greatest assets. Just like gold is predictable as an asset, so is Bitcoin. It’s this reason that the number of investors holding Bitcoin in their wallet for more than one year continues to grow.
In terms of investing in Bitcoin, most analysts agree that it will generate returns over the course of 2020. YouTuber MMCrypto, for example, believes that Bitcoin will almost double from its price today of over $10,000 to hit its prior all-time high by the end of this year. Whilst 100% gains in less than half a year are insane by traditional investing standards.
Investing in Altcoins: High Risk, High Reward?
Altcoins, in general, have a lot more room to grow than Bitcoin does. At fractions of the BTC market cap, more obscure projects can pump massively in a short amount of time. However, the problem is choosing which one will pump and when.
Whereas Bitcoin faces little competition in the digital gold niche, almost every altcoin has one or more projects going after the same market. Take the smart contract platform, for example. Ethereum is the biggest today. But the likes of Cardano, EOS, Tron, and a host of others are all smart-contract ready and working on improvements that could steal Ethereum’s thunder. One of these projects could well outperform Bitcoin over the rest of this year. Choosing which it will be is the hard part!
As mentioned earlier, this isn’t supposed to be investment advice. If you were hoping to read this article and discover a list of must-buy coins, you’d better look elsewhere. We make no claims to be able to read the future and anyone who does say “X cryptocurrency will reach Y price by Z date” should be treated with massive suspicion. Ultimately, they don’t know and are likely trying to engineer interest so that their own investments gain in value. And there are plenty of profit-hungry buyers for them to sell to.
If you want to invest in any cryptocurrency and particularly altcoins, do so with extreme caution. Do research on the projects. Look at what they are setting out to accomplish and who is behind the crypto. Judge for yourself whether they have a decent chance of doing so and invest only a small amount in these long-shot plays. Also, be careful not to rush in, just because everyone is talking about a coin at a particular time. You’ll probably get a better entry if you wait.
It’s also important to remember that among altcoins there are many overt scam projects. The likes of Bitconnect, OneCoin, and Plus Token, all left investors out of pocket in recent years.
If you’ve done plenty of research into an altcoin and decide that you’d like to invest, you can do so using the Godex exchange platform. You don’t need to make an account there to start trading. You can just transfer funds from your wallet to the platform to buy and sell crypto. You’ll need to use a different platform to exchange fiat currency for Bitcoin first though.
Conclusion: Think Like a Horse Race Fan!
A decision to invest in cryptocurrency certainly has the potential to result in massive gains over the course of 2020. Most analysts are convinced we’ve entered a new bull market and in it, there’ll likely be many opportunities to profit from all sorts of obscure coins and tokens, as well as more mainstream ones.
If you’re thinking about riding the wave, set realistic goals, and stick to them. Remember that, like in 2017, the hype will make even projects with no real future pump by huge percentages. Don’t get greedy and cash out when your targets have been reached.
If you’re playing a longer game, you want to stick to the projects with the best fundamentals. Many of these have already seen large investment, so their upside potential will be lower. However, their chance of catastrophic failure is also lower than with a niche altcoin.
It works a lot like betting on horse racing — the favourite has lower odds because it’s more likely to win. Meanwhile, the rank outsider you might back with a few quid probably won’t come first. However, when it does, you will be rewarded handsomely.