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Web3  · 05/17/22

4 Building Blocks To Become A Successful Altcoin Investor

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05/12/22 · Crypto trading 101
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According to Coin Market Cap, the global crypto market cap is USD$1.88T as of April 2022. Bitcoin still makes up the largest minority of the total, with a market cap of USD$770B (40% of the total).

Needless to say, Bitcoin is considered the most reliable cryptocurrency at the moment. Be that as it may, other coins can generate considerable profits for investors like yourself. These are what experts call altcoins, which are basically any coin other than Bitcoin.

The market has generated over 19,000 altcoins since Bitcoin was born. They may not be as widely used as Bitcoin, but altcoins still make up over half of the total crypto market share.

Though some have disappeared before making their mark, the ones that did survive are now becoming more profitable. For example, Ethereum (ETH) takes up a large piece of the cryptocurrency market with a market cap of USD$361B (19%) as of April 2022. In the 2017 altcoin bubble, there were even speculations of ETH overtaking Bitcoin’s dominance - an event that was dubbed “the flippening”.

Considering the exorbitant gains that were extracted out of the memecoin markets, it's only natural that you'd want to become an altcoin investor.

However, keep in mind that an altcoin strategy will be different from a Bitcoin strategy: With low-cap altcoins, a multi-year hodl strategy probably will not be profitable.

Here are four tips to help you get a head start as an altcoin investor.

  1. Know your altcoin niche

    Though the term "altcoin" includes the entirety of cryptocurrency coins outside of the famous Bitcoin, several classifications exist within this category. Examples of these are:

    Stablecoins

    A stablecoin is a type of altcoin that is pegged to a non-crypto asset to keep its price stable, hence the name. Stablecoins tie their value to specific goods, like fiat currencies (e.g., US dollars, British pounds) or precious metals. Examples of stablecoins are USD Coin (USDC) and Tether (USDT).

    The primary merit of purchasing and holding stablecoins is the option to stake them on DeFi platforms or lock them in earning plans for good interest on some exchanges. Phemex pays out 11% APY on USDT as of May 2022.

    Meme coins

    A meme coin is basically an altcoin that came into existence due to a popular joke or meme. For example, Dogecoin is a popular meme coin that originated from the Doge meme that was extremely popular at the time of its founding. As unbelievable as it may be, Dogecoin is currently doing well in the crypto market, with a market cap of over $18B.

    Shiba Inu and similar types of altcoins thrive on hype from popular memes, and they most definitely have the potential to blow up. However, a meme coin is just as likely to lose popularity and die down as time progresses.

    Pre-mined altcoins

    Pre-mined altcoins are coins mined before their public launch, which are then distributed to specific individuals. These include founders, investors, and developers of the coin.

    Apart from the lower profitability, pre-mined altcoins are infamous for having their price controlled by the founding team. One of the people behind Ripple (XRP), for example, allegedly sold a huge amount of their coins. This action then caused XRP to plummet in price.

    Utility tokens, privacy tokens, security tokens…

    There are many other classifications of altcoins, such as utility tokens, security tokens, or privacy currencies. Each niche has its own merits.

    Examples of established altcoins that are worth looking into in 2022 include Cardano (ADA) for it’s staking rewards, Binance Coin (BNB) for the platforms that run on it, and Monero (XMR) for its unique privacy features.

  2. Select a reliable exchange with altcoin markets

    Despite the ever-increasing popularity of cryptocurrency, not all exchanges are suitable for altcoin investments. Some have relatively high fees (such as Coinbase), while others offer too few altcoin options (such as Kine).

    Since you intend to invest mainly in altcoins, you must look for exchanges with excellent terms and numerous altcoin options. Selecting an exchange is one of the first steps to becoming a successful altcoin investor.

    A general rule of thumb when selecting a crypto exchange is to stick to reputable exchanges and avoid lesser-known platforms. If you want to compare exchanges, you can check Smart Billions and similar sites.

  3. Decide on a percentage of portfolio allocation for each altcoin investment

    Once you have specific altcoins in mind, you must decide how much of your portfolio to dedicate to each altcoin. In an interview with billionaire Mark Cuban, he states that his cryptocurrency holdings consist of 60% Bitcoin, 30% Ethereum, and 10% lower-cap altcoins.

    With this practice, you can avoid scenarios where you lose all your funds by investing too much in one altcoin. This is especially true if you plan on investing on risky altcoins with highly volatile prices.

    In your case, you'd want to decide on the allocation for each altcoin. For instance, you can divvy it up, so 50% is spent on Altcoin A, 30% on Altcoin B, and 20% on other altcoins.

  4. Take the market cap of the altcoin into consideration

    Most investors focus on an asset's price when investing in a coin. It may not be a terrible strategy, but it's not a good one either. The price is just one of the factors that determine a crypto coins' value and potential. Rather than focusing solely on a coin's price, you must also look at its market cap. This refers to the total dollar value of all the coins mined (Price X Circulating Supply).

    Investors look at the market cap mainly because it indicates the stability of a coin. Generally speaking, a large cap (over USD$10B) means even when numerous people cash out, the price won't change drastically.

    On the contrary, if an altcoin has a small cap (less than USD$1B), it's susceptible to drastic swings in price. Of course, that's not to say small-cap altcoins are not worth your money. While a volatile altcoin is not necessarily a bad investment, it does affect your strategy. That's why it's important to consider market cap when investing. Remember, a large cap is a good indicator of stability.

Parting words

Altcoins may technically run on the same mechanisms as Bitcoin, but the investment strategy differs.

Therefore, you may want to look into as many guides as you can for altcoin investing. Who knows, you may find this venture more profitable, especially since altcoins are generally more volatile than Bitcoin.


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