Crypto investment has been on the rise for years now. Because of that, many altcoins or alternative coins have surfaced. Altcoins are other cryptos aside from Bitcoin. Since there are now thousands of altcoins circulating in the market, it may be difficult to choose which one to add to your investment portfolio. Hence, before buying one, you should consider the following tips:
Understand the Types of Altcoins
As mentioned, any crypto aside from Bitcoin is an altcoin. These altcoins are produced due to failed experiments or cash-grab projects, while others are straight-out copies of Bitcoin’s open-source protocol. With such, altcoins have different characteristics, solutions, and value propositions. Knowing which type an altcoin belongs to before buying one will help you invest in the proper digital asset.
Here are some of the kinds of Altcoins:
- Joke Coins: As its name suggests, these coins are created with no intention to innovate but merely for fun. However, some are trade-able using fiat currencies, while others can be sent from one person to another. In addition, some of them may not be recommended as a long-term investment because they’re just get-rich-quick schemes without any value.
- Reward Tokens: These coins are collected as rewards for active participation in a specific platform or ecosystem. Hence, if you join a platform and complete tasks to power its ecosystem, you can receive reward tokens.
- Asset Tokens: These altcoins are backed by commodities such as oil, gold, fiat currency, and others. Since they represent commodities, it’s safe to say that asset tokens derive value from the underlying assets. As such, these tokens can have more stable prices than most altcoins. Some investors even believe that their market will likely grow as they’re a novel way to use blockchain. This means you can purchase these tokens without the added costs of transportation and logistics. Some of these asset-backed tokens are Digix Gold Token (DGX), TrueUSD (TUSD), and Tether (USDT).
- Security Tokens: You can receive security tokens if you’re participating in a project, which gives you a portion of project ownership. Some of these altcoins pay dividends as they represent the digital shares of a company. However, you must ensure that these projects comply with regulations to avoid encountering regulatory constraints.
- Utility Tokens: You can use these tokens to have specific rights, like access to privileges, services, and functions when using a particular app. This means you need to have these tokens or app coins before using a specific platform. These types of altcoins are also distributed via Initial Coin Offerings (ICOs) and issued on a specific blockchain such as Ethereum. Then, you can sell them to Ether—Ethereum’s official currency—and then sell these Ether to crypto exchange platforms, like Swyft. If you want to invest in Ethereum, you can learn more tips here.
- Digital Currencies: As the name suggests, you can use these coins to facilitate reliable peer-to-peer transactions. This is because they work as currency tokens, digital coins, or cryptocurrencies. Their goals are similar to Bitcoin’s, which is to have a digital currency that anyone can use from across the globe without third-party interventions.
Understand the Market Cap
Market capitalization, or market cap, shows the growth and stability potential of an altcoin. Seasoned investors say that the investment is safer if the market cap is higher than other altcoins. You can work this out by multiplying the total number of coins in the market by their current price. This will help you know if a specific altcoin is an excellent long-term investment instead of relying on its current market price.
By using market caps, you can invest in various altcoins to build a diversified investment portfolio. It’d also be better to have a moderate cap, a medium-high cap, and a high market cap crypto. You can even invest in low cap altcoins that have less than USD$20 million market cap since these can make you earn huge gains. However, you should also be wary as the risk is also higher in such coins.
Check the Average Exchange Volume-to-Network Value
It’s also a must to know the coin’s level of interest over the past month. You can do so by calculating it on a spreadsheet. Go to the Historical Data of the coin on Coinmarketcap and other reliable crypto apps, and then copy such data. To get the average exchange volume for the period, add all the volume data over the past 30 days and divide it by 30. Also, do these steps when getting the average network value. Lastly, divide the average exchange volume by the average network value to know its percentage.
You can use the result to know if there’s a consistent interest in the altcoin at its current price. A percentage of above 0.5 for the last month is a good indicator that a specific altcoin has a continued interest.
Don’t Focus on Buying Because the Price is Low
While buying a coin at the lowest price is a popular strategy, it’d be a waste to only focus on this without understanding the previous sections. If you rely on doing this, you may buy an altcoin that’s considered a joke coin. This means you could be wasting your assets on a coin that may not increase its current price.
Again, it’d be better to check the market cap and do the average exchange volume to network value before considering the cheapest altcoin. If they have good results, then consider them as an investment. But if they don’t have a good one, their affordable prices may not be worth it in the long run.
Since Bitcoin’s current price has risen and keeps on rising, it may be too expensive for you to start buying this coin in one go. The solution is to invest in other altcoins. Buying altcoins allows you to start investing at a low budget while diversifying your crypto investment portfolio. But before purchasing an altcoin of your choice, it’s important to consider the tips above. Doing so will give you sufficient knowledge on choosing an altcoin that can be a worthy investment.