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The cryptocurrency market is booming, with new cryptocurrencies being created all the time. Of course, Bitcoin and Ethereum are still the biggest players on the market, but there are also many other promising altcoins that deserve your attention.
In this article, we break down some important things to look for when investing in cryptocurrency, specifically in altcoins.
While holding some BTC or ETH is great, so is diversifying your crypto portfolio. Here are some key factors to consider when choosing which altcoins to invest in.
What are altcoins?
Altcoins is a term used to describe all crypto tokens and coins other than Bitcoin. The most popular altcoins include Cardano (ADA), Solana (SOL), Dogecoin (DOGE) and Polkadot (DOT).
The name itself is an abbreviation for ‘alternative coins’. Not an alternative to the physical coins you keep in your wallet, but an alternative to the global leaders in cryptocurrency: Bitcoin (BTC) and Ethereum (ETH). Many altcoins are created for innovative purposes such as; providing voting privileges (governance tokens) or as a method of payment (utility tokens). Some of these altcoins may see widespread adoption.
The case for BTC and ETH
BTC and ETH are the two biggest cryptocurrencies in the world by market capitalisation. They are considered the most important crypto assets to hold as they are the most established and widely adopted crypto coins, they were also the first assets to utilise blockchain technology.
There are other reasons to invest in these assets. Bitcoin and Ether have great utility (usefulness and usability) and a strong community of users, miners, and developers.
Bitcoin launched in 2009, making it the first-ever cryptocurrency ever created. Ethereum came later in 2015, with Ether being the network’s native crypto. However, most of the cryptocurrencies in existence were established after the bull run in 2017, so Bitcoin remains one of the oldest cryptocurrencies.
These characteristics make the two less volatile, though, of course, they are not immune to market fluctuations.
Altcoins tend to follow the price action of Bitcoin to a certain extent. Bullish Bitcoin price movements are usually followed by price increases in most altcoins. Alt season is a period of time, usually following a spike in BTC price, when altcoins outperform Bitcoin.
Popular altcoins
There are over 17,000 altcoins on the market. Some of the most well-known and best altcoins include Ripple (XRP), Solana (SOL), Shiba Inu (SHIB), Dogecoin (DOGE), Polkadot (DOT) and Cardano (ADA).
Popular and “good” altcoins will constantly change with new altcoins entering the market all the time. It is important to research alternatives, as popular altcoins from 3 years ago may no longer be in the top 100 coins by market cap in 2022.
Top performing altcoins of 2021
When finding the best altcoin investments on the crypto market in 2022, it can be useful to review the past performance of some of the top players from the year before. Seeing an assets’ past performance and growth can help to measure its future success, especially if the asset has managed to maintain steady growth.
Here are some of top performing altcoins of 2021:
- Shiba Inu (SHIB) – 20m %
- Dogecoin (DOGE) – 3,546.0%
- Avalanche (AVAX) – 3,334.8%
- Binance Coin (BNB) – 1268.9%
- Cardano (ADA) – 621.3%
What to look for when buying altcoins
There are a number of things you can do to identify the best altcoins to invest in. The key to finding the best altcoins on is to conduct thorough research which can include looking at a coin’s market cap, use cases, team, road map and more.
Market cap
Market cap (market capitalisation) indicates the stability and growth potential of a cryptocurrency. Work it out this way: the current price of a coin is multiplied by the total number of coins in circulation. The rule of thumb is that the higher the market cap (compared to other coins), the safer the investment. Market cap is a better long-term indicator of the worth of a cryptocurrency than its market price.
Market cap = coin price * number of coins in circulation
If you want to build a diversified portfolio of altcoins then you can invest in a range of different market caps, rather than making decisions based purely on price. You may want to consider holding a high market cap coin/crypto, a medium-high cap, and a moderate cap. While you can earn huge gains from low cap coins (generally below $20 million market cap), these coins are high risk, and you could end up losing your entire investment.
White paper
An altcoin’s ‘white paper’ gives you a comprehensive explanation of the project. They can be quite technical for the average investor, but they will give you an idea of what the project sets out to do.
- Utility – What is the purpose of this cryptocurrency? Does it solve a real problem or greatly improve on an existing technology?
- Future prospects – plans and roadmap: where is the project going?
- Underlying technology – how does it work?
You can find the whitepaper of almost every available cryptocurrency here.
Use cases
Cryptocurrency use cases are related to utility – do people really want or need this alternative? The best way to think of it is to look at Bitcoin’s use case:
Bitcoin was the first effective digital currency that did not require a bank. People could store and send money autonomously, with no need for a third-party financial institution. People certainly wanted to have less dependence on financial institutions. This was a demand that Bitcoin addressed, so – despite short term market volatility – Bitcoin’s price has continued to rise year after year.
Competitors
There are several different categories of crypto projects like decentralized finance (DeFi), payment coins, gaming, NFT’s etc. A lot of coins have similar use cases, so it’s important to compare crypto projects against their competitors. For instance, if you’re looking to buy Solana, which is a blockchain platform with smart contracts, you should look at other coins in the same category. Solana’s main competitors include Ethereum, Cardano and Cosmos. Solana’s native token, SOL, is listed on the Swyftx crypto exchange.
Check out the competition’s white papers and utility. Often competitors who were first into a user-space are best placed; that may explain the market dominance of players like Bitcoin and Ethereum. However, it’s important to understand that more than one project can exist and excel in the same category.
Cryptocurrency roadmap
Is the altcoin going to be around for a long time, and will its developments help grow your crypto portfolio? Is there a vision for the future, a roadmap? A roadmap is a planning technique that identifies short and long term objectives of a crypto project. It can be a great indicator for future performance, especially if past performance shows that the project has been able to meet past objectives. The roadmap will usually be displayed on the project’s website. Things you should look for in the roadmap include:
- Clear timelines for the development of the coin. No clear timeline may indicate a lack of commitment and/or planning from the development team.
- Are they planning to release major updates? Are there any scheduled announcements in the foreseeable future?
- What is the total amount of altcoins that will ever be produced? How many are currently in circulation? What will that mean for the price of a single coin?
The altcoin community
Legitimate cryptocurrencies likely have a group of people they serve and thus a solid community around them. This community includes miners, developers, supporters and potential users. They give value to an altcoin by adopting its use case and validating its legitimacy and popularity.
Digital currencies with strong, active communities are a good sign that there is genuine interest and belief in the coin.
It is critical to know the credibility and the experience of the team behind any crypto project. It’s important to do research on any cryptocurrency and its team.
Altcoins with potential in 2022
We took the time to perform our own research, taking into consideration the key aspects that make a good altcoin and have developed our own list of what we believe are some of the best altcoins to buy in 2022. Swyftx is unable to provide financial advice and we encourage everyone to do their own research before they trade altcoins.
Avalanche (AVAX)
Avalanche (AVAX) is an Ethereum competitor, offering faster speeds and lower fees on transactions and Interoperability which refers to sharing information across different blockchains. AVAX had a strong end to 2021 and looks to be a strong coin with potential in 2022.
Terra (LUNA)
Terra is an advanced blockchain protocol that uses fiat-pegged stablecoins to power its digital payment system. Terra’s biggest stablecoin, UST, is pegged to the US dollar. However, instead of being backed by USD, UST is backed by LUNA. When the demand for the UST stablecoin increases, LUNA tokens are burned which decreases the total of supply of LUNA. This then results in an increase of value of the LUNA token.
Polygon (MATIC)
Polygon is a layer-2 scaling solution designed to improve the speed and cost of transactions on the Ethereum blockchain and blockchain networks It acts as an add on layer to Ethereum to help it expand in size and effectively scale its platform.
Cosmos (ATOM)
Cosmos (ATOM) is a blockchain ecosystem, designed to redefine the slow and expensive Proof-of-Work protocols used by cryptocurrencies like Bitcoin and Ethereum. It is a Proof of Stake (PoS) blockchain platform that plays hosts to dozens of important decentralized applications (dapps)
Where to buy altcoins in Australia?
The most common place to buy altcoins is through a cryptocurrency or altcoin exchange. Swyftx crypto exchange lists over 300 digital assets, so there is plenty of choices when looking to buy and sell altcoins. Having an exchange account with Swyftx allows you to purchase digital currencies using a secure, easy-to-use app. We support a number of fiat currencies including AUD, NZD and USD, and allow various payment methods, so once you deposit funds from your bank account, you can start trading altcoins immediately.
So which altcoins should you invest in?
unfortunately, Swyftx cannot give investment advice, but we hope that this guide has provided you with the tools and knowledge to make educated investment decisions on altcoins. There is no such thing as a risk-free investment but by considering the factors we’ve mentioned above you should be able to make a more educated decision. Read our beginner’s guide to investing in crypto or our altcoin deep dives available on Swyftx Learn, where we provide a wealth of other resources and insight.
Ted
