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Bitcoin, the world’s largest cryptocurrency by market capitalization, has seen its price spike in recent months, hitting an all-time high of nearly $ 42,000 (£ 31,000). While Bitcoin rightly makes most of the headlines, investors are increasingly turning to other cryptocurrencies – or altcoins – when looking for the “next Bitcoin”.
We’ll take a quick look at altcoins and discuss whether you should buy them.
What is an altcoin?
In simple terms, Altcoin is any alternative cryptocurrency to Bitcoin. It is a combination of two words: ‘old’ means alternative and ‘coin’ means cryptocurrency.
Bitcoin was officially the first cryptocurrency. As the first of its kind, however, it has several limitations. These include the speed of the transaction (i.e. how long it takes to send or receive), transaction fees, and privacy.
Over time, other people have bypassed some of these restrictions to create their own cryptocurrencies – or altcoins – to compete with Bitcoin.
In fact, many altcoins have been targeting Bitcoin’s limitations to provide users with more powerful features like faster transaction speeds, lower fees, and improved privacy in the hopes that theirs may be the “next bitcoin”.
Which are the most popular altcoins?
There are currently more than 5,000 altcoins in circulation. The top 10 by market capitalization as of January 14, 2021 are:
- ether (ETH)
- rope (USDT)
- XRP (XRP)
- Speckle (POINT)
- Litecoin (LTC)
- Cardano (THERE IS)
- Bitcoin Cash (BCH)
- Stellar (XLM)
- Chain link (SHORTCUT)
- Binance coin (BNB)
As with Bitcoin, you can buy most of these altcoins on cryptocurrency exchanges such as Coinbase which is one of the most popular exchanges for UK crypto investors.
Should you invest in altcoins?
The jury is not yet sure whether investing in cryptocurrencies is a good idea. In my personal view, whether you prefer to take a risk or play it safe depends on the type of investor.
If you are a risk taker and have already made the decision to dip your toes into the crypto world, I believe there are two main reasons to add altcoins to your portfolio:
- They offer protection against Bitcoin. If all of that high and powerful Bitcoin collapsed (which is a possibility), Altcoins would at least give you something to fall back on.
- Due to the increased interest of public investors and financial institutions there is the possibility of bigger profits. As interest increases, prices are likely to rise. Since altcoins are much cheaper than Bitcoin, you can get a large chunk of the coins at a low price.
What are the risks?
You can put your money in altcoins to protect yourself from possible Bitcoin loss and in the hopes that they will appreciate it. But there is no guarantee of that. Your altcoin investment could very well fail rather than succeed.
This risk is particularly compounded by the fact that altcoins are not exposed, as well as the general acceptance that Bitcoin is increasingly enjoying. Although this could change in the future, it definitely makes altcoins riskier than bitcoin. Bitcoin itself is not without risk, however, as we have outlined reasons in our feature to be careful when investing in Bitcoin.
What’s the verdict?
My suggestion would be to approach altcoins with caution. More specifically, I would say don’t wager more money than you can afford to lose.
If you choose to invest in altcoins, spread your risk and diversify your holdings. That means you have to split your money across several altcoins ETH, XRP, LTC, BCH, SHORTCUT and others that you have chosen after careful research.
That way, you will be able to benefit from a coin’s powerful performance and minimize potential losses by spreading your investment out to others.
What other options are there?
If you’re looking for an investment with a much stronger and safer track record of making people rich, then consider the stock market.
Investing in stocks is a proven strategy that has helped many people build wealth over the long term. The good news is that getting started is extremely easy. With a top stock trading account, you can start buying stocks and making claims on large, high performing companies in minutes.
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