Why altcoins are gaining on Bitcoin.
Altcoins are alternatives to the cryptocurrency king, Bitcoin (BTC), and as crypto’s market capitalization has reached new heights, these alternative coins are chipping away at Bitcoin’s market share. Of the global crypto market cap of $2 trillion, Bitcoin’s market share is 39% as of Jan. 14, down from about 70% from this time last year, according to TradingView. In other words, altcoins currently make up more than 60% of the crypto market. Bitcoin’s runner-up, the Ethereum blockchain’s Ether (ETH), is taking some of the market share and stands at 19%, but it’s the smaller altcoins that are more of a threat to Bitcoin’s long-term dominance as more investors are trying to find the next big coin that may skyrocket. New cryptocurrencies like Cardano (ADA), Avalanche (AVAX), Ripple (XRP) and Polkadot (DOT) are on the rise, and tout more functionalities than Bitcoin. Investors who want to partake in this growth will need to understand why altcoins are gaining on Bitcoin. Here are seven reasons why the underdogs are having their day.
Cryptocurrency’s uses are expanding.
Many altcoins are not just cryptocurrencies, but their technology can be harnessed for other uses. Blockchain technology opens the door to a variety of applications important to different industries, including peer-to-peer financial platforms, automation, building trust around transactions and providing greater access to credit. These use cases, which are unrelated to Bitcoin, are “finally being recognized and (are) achieving meaningful adoption,” says Clayton Gardner, co-founder and co-CEO of Titan, a cryptocurrency investment platform. Gardner says altcoins are gaining on Bitcoin because the industry is leaning toward “different crypto sectors that have different value drivers such as smart contract platforms, DeFi (decentralized finance) apps, NFTs (nonfungible tokens), play-to-earn games, distributed storage platforms, etc.” These applications are fundamental for developing new ways for consumers and businesses to digitally interact and manage operations.
Institutional investment in altcoins is growing.
Digital assets are gaining momentum among institutional investors. Since these larger investors tend to have more money to invest and may be able to take on more risk than the average investor, they’re able to pour into speculative assets, and more mainstream interest has followed. “Institutional capital is also moving past the simple binary question of ‘to have exposure to crypto or not’ and into ‘where should I invest within crypto?'” Gardner says. As crypto becomes more widespread, institutional investors acknowledge blockchain’s value across market sectors. Gardner says altcoins are due to benefit from this trend, which “potentially represents one of the biggest tech paradigm shifts over the coming decade.”
Crypto investing fundamentals are changing.
Each cryptocurrency has its own protocol, which can be thought of as the rules for a network to operate. Bitcoin has a cryptographic protocol where users buy and sell Bitcoin through digitally signed encrypted messages. Each altcoin has its own protocol that establishes the structure of the blockchain. The more users and activity on a given protocol, the more valuable the cryptocurrency is. Cryptocurrencies with strong use cases could mean they have strong fundamentals that may be able to survive the vast competition in the cryptocurrency market. “Crypto is in the midst of crossing the chasm — from macro/speculative asset class — to one increasingly driven by fundamentals,” Gardner says. Crypto functionalities that have sound infrastructure on their blockchain may lead to greater adoption. “Investors increasingly look at the actual usage, underlying token economic models and their unique growth drivers,” he explains.
Altcoins are cheaper than Bitcoin.
Bitcoin’s price was about $43,000 as of Jan. 14 and has traded as high as the upper $60,000s. Many altcoins are much cheaper, and therefore more accessible to individual investors. As crypto’s popularity continues to grow, investors are looking for new altcoin opportunities that are low in price because they provide the most upside potential. “Altcoins provide a comfortable entry point and an opportunity for asymmetric risk,” where the upside potential of a cheap investment is much bigger than the downside risk of falling to zero, says Rodrigo Vicuna, chief financial officer at Prime Trust, a financial infrastructure provider for fintech and digital asset innovators. “Much like fractional equity shares, altcoins can offer a more palatable price point for first-time or average consumers except without feeling like you get only a piece of the action,” he explains. For example, Litecoin (LTC) is significantly cheaper than Bitcoin, and its price has fluctuated from about $4 in January 2017 to $347 in May 2021 and to its current price of about $136, still a significant gain from an initial investment five years ago.
‘Altcoin season’ may be approaching.
“Altcoin season” refers to altcoins gaining momentum that could challenge Bitcoin’s dominance, with one or more altcoins eventually surpassing Bitcoin. Ron Levy, co-founder and CEO of The Crypto Company says this “flippening” is inevitable. Bitcoin is one cryptocurrency that has a strong use case, but there is a plethora of altcoins that offer so many different purposes. “It’s not just Ethereum; now it’s many thousands (of altcoins) that are coming,” he says. Levy cites DeFi, gaming and the metaverse as opportunities that will allow altcoins to continue to gain market cap.
Altcoins constantly innovate.
Altcoins can take advantage of the shortcomings of Bitcoin. Ethereum, for example, allows for multiple functionalities in the blockchain infrastructure, such as automation and more broadly interacting with the network. The altcoin XRP mines its coins in a much simpler way than Bitcoin. Solana (SOL) was created to provide a more scalable and secure software at a lower cost compared to Bitcoin and Ethereum. Experts say the creation of new altcoins that offer solutions to the limitations of existing cryptocurrencies and blockchains will inevitably affect the demand for Bitcoin.
Altcoins can be used to manage risk.
The most popular reason for trading altcoins is because there is a possibility for a higher return on investment in the short term. But experts say altcoin investors can use the tokens to manage their risk since some cheap coins or projects do not require a large investment. To maintain profits while minimizing risk, Vicuna says, “Look toward assets that gain a foothold in areas such as the metaverse and GameFi or launch separate chains to automate and reward users who will support the chain with continued investments despite what happens to Bitcoin and the market.” Altcoins’ greatest risk-mitigating uses are for investors with a longer time horizon, Levy says. “If you’re looking to get in and get out, there’s a place in the market for that, but if you’re investing your valued savings (and) if you do your research, place it for a while and leave it if you have the time frame to wait,” Levy says.
7 reasons why altcoins are gaining on Bitcoin:
— Cryptocurrency’s uses are expanding.
— Institutional investment in altcoins is growing.
— Crypto investing fundamentals are changing.
— Altcoins are cheaper than Bitcoin.
— ‘Altcoin season’ may be approaching.
— Altcoins constantly innovate.
— Altcoins can be used to manage risk.
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7 Reasons Altcoins Are Gaining on Bitcoin originally appeared on usnews.com
