The cryptocurrency market is booming, and new cryptocurrencies are being created all the time. Of course, Bitcoin and Ethereum are the biggest and most reliable cryptocurrencies, 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, and specifically in altcoins. 

While holding some BTC or ETH is advisable, 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), Binance Coin (BNB) 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, most would argue, Ether (ETH). 

The case for BTC and ETH 

BTC and ETH are the two biggest cryptocurrencies in the world by market capitalization. they are considered the most important crypto assets to hold as they are the most established and widely adopted crypto coins.

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, potential users, and developers. 

Bitcoin launched in 2009, making it the first-ever cryptocurrency ever created. Etheruem came sometime later in 2015, however, most of the cryptocurrencies in existence were established after the bull run in 2017, so it is still 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 of 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. There is often a lot of profit to be made from the crypto altcoin season. 

Popular altcoins

There are over 10,000 altcoins on the market. Forbes stated in September 2001 that Cardano (ADA) and Polkadot (DOT) are the two best altcoins within the cryptocurrency markets.

Some of the most well-known altcoins include XRP, Solana (SOL), Bitcoin Cash (BCH), Dogecoin (DOGE), Uniswap (UNI) and Litecoin (LTC).

Popular and “good” altcoins will constantly change so it’s important to research alternatives, as popular altcoins from 3 years ago may not even be in the top 100 coins by market cap now.

What to look for when choosing altcoins

There are a number of things you can do to identify the best altcoins to invest in. The key to finding good altcoins is to conduct thorough research which can include looking at a coins market cap, use cases, team, road map and more.

Market cap 

Market cap (market capitalization) 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. At the time of writing Binance Coin and Solana had the two biggest market caps after BTC and ETH.

Market cap is a better long term indicator of the worth of a cryptocurrency than its market price.

If you want to have a portfolio of altcoins or cryptocurrencies then you can invest (so the advice says) 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), 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?

Here are links to Bitcoin and Ethereum’s White Papers.

Use cases

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 risen 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 those 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 it continue to grow your portfolio as it develops? Is there a vision for the future, a roadmap? A roadmap is a planning technique that identifies short and long term objectives. 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. 

The credibility and the experience of the team behind any crypto project is critical.  It’s important to do research on any cryptocurrency and its team.

How to buy altcoins

The most common way to buy cryptocurrencies is through a cryptocurrency exchange. The Swyftx crypto exchange lists over 280 cryptocurrencies, so there is plenty of choice when looking to invest in altcoins. We support a number of fiat currencies including AUD, NZD and USD, so once you deposit funds from your bank account, you can start trading 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 taking into account the factors we’ve mentioned above you should be able to make a more educated decision. Read our beginners guide to investing in crypto or visit Swyftx Learn which includes deep dives on a number of altcoins as well as providing a wealth of other resources and insight.

Written by Ted

Written by Ted

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