Crypto Starter Pack: What Are Altcoins and Should You Invest in Them?
Altcoins are where investors look for the next 100x tokens — but investors are bound to step on landmines navigating through the blatant scams (Squid Games token), ponzi-lookalikes (Olympus Dao) or projects run by ex-felons (Wonderland).
What are Altcoins?
Altcoins (alternative coins) are any other cryptocurrencies besides Bitcoin. But over the years, Ethereum’s growing dominance is slowly helping it move out of the altcoin definition.
- Altcoins are often seen as having the potential to rise 10-100x in value — with significantly higher risk.
- Of the 500+ cryptocurrencies trading at the start of 2015 — most have lost the majority of their value.
The big survive: In crypto’s short existence, Bitcoin and Ethereum are among the few cryptocurrencies that survived several large market crashes — and continued to make new highs.
- Bitcoin makes up just over 40% of crypto’s total market cap.
- Ethereum makes up just under 20% of crypto’s total market cap.
- Combined these two make up ~60% of the crypto market.
Despite over 16,500 cryptocurrencies available, altcoins still make up a small portion of the total market cap. Many of the popular upstart cryptos (i.e. Solana, Avalanche, Terra) have only been around for a few years.
Characteristics of Altcoins
Bitcoin and Ethereum have proven to be two of the most reliable investments in crypto — making them “blue chip” crypto investments. Despite their blue chip labels, both have fallen 50%+ several different times in the past few years. Crypto is inherently risky and investing in altcoins can be even riskier.
During bull markets, altcoins can often rise more than blue chips but they often fall harder in corrections. Here are other altcoin characteristics:
- Higher volatility
- Scams are prevalent
- Many can go to zero — and will likely lose the majority of their value.
- Higher potential returns — but significantly higher risk
Don’t look away: Altcoins are not meant to be “set it and forget it” investments. You can’t simply invest in altcoins, forget about it, look back in 5 years and expect your investment to still be there.
Investing in altcoins requires active portfolio management — constant evaluation of your portfolio. And of course, only invest what you can afford to lose.
Despite all these risks, the large potential returns found with altcoin investing is hard to resist. Here’s one method to invest in crypto without the hassle of active management…
Coin Sets are baskets of crypto investments similar to actively managed exchange-traded funds (ETF). Coin Sets help investors diversify across different cryptocurrencies — tracking different trends or themes.
- The Crypto Blue Chip Coin Set invests in 5 of the most well recognized and reputable crypto tokens.
- The New Crypto Stars Coin Sets invests in 10 tokens showing promising growth in the crypto space.
Profiting During Altcoin Season
Crypto investing is still highly driven by trends and narratives. Given the constant innovation in crypto, investors are constantly rotating capital towards the latest trends (NFTs, metaverse, layer 2 scaling solutions, multi-chain infrastructure).
Altcoins run in cycles: When it comes to investing in altcoins — investors need to pay attention to the Altcoin Season cycle.
- Alt Szn: This is a period when altcoins perform better than Bitcoin — with tokens often running up over 2-10x in value.
- Blockchain Center defines us as being in an Altcoin Season when 75% of the top 50 coins performs better than Bitcoin over the past 90 days.
Investing in altcoins during Altcoin Season can be highly lucrative — but timing can be difficult.
- According to Blockchain Center’s, the last Altcoin Season was between March 2021 and June 2021 — when several altcoins ran up tremendously in price.
- Altcoins Seasons tend to occur during bull runs or media hype surrounding different crypto trends.
Are we in altcoin season? See Blockchain Center’s Altcoin Season tracker here.
Beyond understanding the cycle, figuring out what altcoins to invest in — and what not to — is also important…
The Non-Fundamentals Behind Altcoins
Stocks are often valued using fundamentals like growth or earnings. But when it comes to altcoins, most have no fundamental value, revenue or sometimes even lack a product to evaluate — key qualities of meme coins.
Playing the meme: Meme coins — tokens inspired by memes or internet jokes — brought a lot of retail attention to crypto.
- Dogecoin was one of the OG meme coins — soaring 3,000% in 2021 — driven by mass social media attention and Elon Musk promoting the coin.
- Dogecoin was likely many retail investors’ first crypto investment — made accessible by Robinhood and Coinbase.
The popularity of Dogecoin led to Dogecoin copies — Shiba Inu ($SHIB), Floki Inu ($FLOKI) or the hundreds of other doge-related coins
No fundamentals: These coins have no fundamental value beyond what someone else is willing to pay for it — primarily used for speculation.
It’s easy for anyone with the technical knowledge to create and list a cryptocurrency. In the past 24 hours of writing Chubs Inu, Floki Rocket, Baby Lambo Inu and Floki Run were listed on decentralized exchanges.
- For those investing in centralized exchanges like Coinbase, Gemini or Kraken, you’ll rarely come across these cash-grab meme tokens.
- Centralized exchanges vets the tokens before listing them — helping investors avoid tokens that are outright scams.
But not all altcoins are the same…
The Fundamentals Behind Altcoins
If you look closely, investors can often find value in promising projects that could turn into the next 10-100x investment.
Starting small: Even Ethereum ($ETH) once started out as an altcoin (many still consider it to be one). In 2018, Ethereum grew to become the second-largest crypto behind Bitcoin — but many still questioned the future of ETH then.
Today, Ethereum has grown into one of the most important pieces of crypto infrastructure — with a total return of over 280,000% between 2016 and 2021. If you can sift through the garbage, there are real gems to be found…
- Beyond meme coins, there are many altcoins with promising projects behind them tackling real problems — and generating real revenue.
- Where we are today in crypto is where the internet was in the early 1900s — and before all the exciting projects can flourish, we need the basic infrastructure to power those apps.
Samples of crypto projects with real applications:
- Utrust ($UTK) provides payment solutions for merchants to offer crypto payments.
- Basic Attention Token ($BAT) is the token for the Brave Browser with over 50 million monthly active users — letting people earn crypto for browsing the internet.
- Uniswap ($UNI) is the largest decentralized crypto exchange by trading volume.
- Axie Infinity ($AXS) is a play-to-earn game where players can earn the in-game currency for playing Axie’s mobile and desktop game.
- Projects listed are only listed as examples — not investment advice.
Instead of actively researching and managing investments, investors can allocate capital in Coin Sets — actively managed crypto portfolios based on various themes.
- Over 40 Coin Sets to choose from.
- Invest in themes like the Metaverse, Web 3.0 and NFTs.
Investors can also choose to invest in Mudrex Mints — 3 different crypto portfolios actively managed by Mudrex based on three different risk profiles: low, medium and high risk.
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