A must-see for beginners! Basic knowledge of altcoin investing and key points for selection

Since the birth of Bitcoin in 2009, the world of cryptocurrencies has expanded rapidly. Today, the cryptocurrency market hosts over 16,500 digital assets, and the term “Altcoin”—a portmanteau of “Alternative” and “Coin”—refers to all cryptocurrencies other than Bitcoin, accounting for about half of the total market value.

“Altcoin” generally encompasses all virtual currencies besides Bitcoin. However, some investors define altcoins as all cryptocurrencies excluding Bitcoin and Ethereum (the second-largest project worldwide).

Altcoins can be broadly classified into two categories based on their technical implementation:

• Bitcoin-based: Improved versions built on Bitcoin’s existing codebase with added features
• Independent development: Built from scratch with entirely different codebases

Most altcoins aim to overcome Bitcoin’s limitations, addressing issues such as transaction speed, energy consumption, privacy enhancement, and smart contract functionality, among others.

The Role of Altcoins and Bitcoin in the Market

While Bitcoin accounts for approximately 50% of the total market capitalization, altcoins support the remaining 50%. This structure indicates the increasing importance of altcoins in the digital economy.

What Are Main Types and Features of Altcoins

The cryptocurrency ecosystem consists of a diverse array of altcoins designed for various purposes.

Stablecoins

Designed to minimize price volatility by pegging their value to stable assets like the US dollar or gold. Examples include USDC, USDT (Tether), and DAI. Stablecoins serve as safe havens in volatile markets and play a crucial role in daily trading.

Utility Tokens

Provide access rights to services within specific blockchain networks. For instance, XRP is used to improve international remittance efficiency, and MATIC is used for fee payments on the Polygon network, with each token serving specific functions.

Payment Tokens

Designed for efficient value exchange through fast processing and low transaction fees.

Governance Tokens

Grant voting rights to holders for decision-making in blockchain projects. For example, Maker ###MKR( allows token holders to vote on protocol changes, similar to corporate shareholder voting.

) Security Tokens

Represent ownership rights in real-world assets such as company stocks or real estate. They are often subject to traditional securities regulations.

Meme Coins

Originating as jokes or internet memes, these cryptocurrencies have grown through community support. Dogecoin ###DOGE( and Shiba Inu )SHIB( are prime examples, characterized by unlimited supply and low individual token prices.

) Play-to-Earn (P2E) Tokens

Used in blockchain games where players earn cryptocurrency rewards through gameplay. Examples include games like Axie Infinity, where players can breed, grow, and battle fantasy creatures to earn tokens.

Major Altcoins by Market Capitalization

Ethereum ###ETH(

The largest altcoin, enabling smart contracts that execute automatically. This innovation has led to thousands of applications across finance, gaming, digital art, and more.

) XRP

A remittance-focused token developed by Ripple Labs, enabling fast and low-cost international payments. It aims to replace traditional SWIFT banking systems and facilitate cross-border transactions for financial institutions.

Solana ###SOL(

Known for processing thousands of transactions per second on a high-speed blockchain. Its low cost and high throughput make it suitable for trading platforms, gaming, and other high-load applications.

) Cardano ###ADA(

Prioritizes research-driven development, focusing on security and sustainability. Uses a Proof of Stake )PoS( consensus mechanism that consumes significantly less energy than Bitcoin’s mining process.

) Litecoin ###LTC(

An early altcoin launched in 2011, often called “silver to Bitcoin’s gold.” Offers faster transaction confirmation times and different hashing algorithms, with over a decade of adoption in everyday payments.

) Dogecoin ###DOGE(

Originating as an internet meme joke, Dogecoin has grown into a globally recognized cryptocurrency. Supported by a passionate community and endorsements from celebrities, it is used for online tipping and small payments at an affordable price.

) Tether ###USDT(

One of the largest stablecoins pegged to the US dollar, backed by reserves to maintain a 1:1 value ratio. It plays a vital role in enabling traders to move between volatile cryptocurrencies and stable assets without converting to fiat, and it is the most traded stablecoin.

) USD Coin ###USDC(

A regulated USD-pegged stablecoin issued by the Centre consortium (founded by Circle and Coinbase). Regular attestations of dollar reserves ensure transparency, making it essential for decentralized applications and cross-border payments.

) Shiba Inu ###SHIB(

Launched in 2020 as a substitute for Dogecoin, it rapidly gained popularity. Starting as a meme coin, it has expanded into features like decentralized exchange ShibaSwap and NFT platforms. Its extremely low token price allows many individual investors to hold millions or billions of tokens.

) Uniswap ###UNI(

Revolutionizing crypto trading with an Automated Market Maker (AMM) model, Uniswap is one of the largest decentralized exchanges. It enables direct wallet-to-wallet trading, and UNI holders can participate in governance votes to improve the protocol.

Essential Market Indicators

) Altcoin Dominance

Represents the proportion of altcoins in the entire cryptocurrency market:

Altcoin Dominance = (Total Market Cap - Bitcoin Market Cap) / Total Market Cap × 100%

This indicator is a powerful tool for market trend analysis:

• Rising dominance (above 55%): Altcoin season, indicating capital inflow into altcoins
• Declining dominance: Bitcoin-centric market, with investor focus on Bitcoin

Historically, during the 2017-2018 bull run, dominance reached about 67%, and mid-2021 it was around 60%, coinciding with sharp altcoin price surges.

Altcoin Market Cap

Represents the total value of all circulating altcoins, calculated as current price × circulating supply for each coin (excluding Bitcoin).

Insights from market cap trends:

• Steady growth: Continued interest in the crypto ecosystem
• Sharp spikes: Possible signs of excessive speculation or bubbles
• Comparison with other assets: Understanding relative importance and adoption levels

Many investors track the ratio of Bitcoin market cap to total altcoin market cap to identify capital flows. Inflows from Bitcoin to altcoins typically lead to overall price increases in the altcoin market.

Benefits and Risks of Altcoin Investment

( Investment Advantages

High growth potential: Smaller altcoins with lower market caps can deliver higher returns upon success. Investing the same amount can yield higher profits than Bitcoin.

Diversification: Thousands of altcoins allow selection of projects aligned with specific technologies, industries, or social issues.

Beyond mere currency: Many altcoins offer functions beyond store of value, supporting decentralized applications and governance rights.

) Investment Risks

High risk level: Altcoins are riskier than Bitcoin, with many projects failing and resulting in losses. Smaller projects carry higher risks.

Market volatility: Altcoin prices are highly volatile, with daily swings of 20-30% not uncommon, making timing difficult.

Liquidity issues: Most altcoins have lower trading volumes than Bitcoin, and large trades can significantly impact prices.

Regulatory uncertainty: The regulatory environment for cryptocurrencies is still evolving, and future policies could significantly affect altcoins, especially those classified as securities.

Fraud and failed projects: The altcoin market hosts numerous scams, fraudulent projects, and failed ventures. Insufficient research increases the risk of falling victim to Ponzi schemes or unfulfilled promises.

Due Diligence Framework Before Investing in Altcoins

Given the risks, thorough research before investing is essential.

Project’s Problem-Solving Ability

• What real-world problem does the altcoin aim to solve?
• Is there actual demand for this solution, or is it addressing a fictitious issue?
• Does it have advantages over existing solutions?

Team Evaluation

• Verify the background and track record of the development team
• Confirm transparency of team members’ identities and credentials
• Past project success stories
• Number of active developers

Whitepaper Analysis

As a key document explaining the project’s technology, goals, and implementation strategy:

• Clear and specific technical explanations
• Realistic roadmap with timelines
• Transparent tokenomics (distribution and usage)
• Warning signs include vague descriptions, unrealistic promises, or poor writing quality

Tokenomics Verification

• Total supply structure
• Distribution methods and schedule
• Inflation control mechanisms
• Lock-up periods for team tokens

Market Metrics Evaluation

• Market Cap: Total value of circulating tokens
• Liquidity: Ease of buying/selling without affecting price
• Trading Volume: Daily trading activity
• Price Trends: Historical movement over time

Community and Practical Use

• Community size and activity on social media
• Partnerships with existing companies or organizations
• Real-world usage and adoption statistics
• Quality of communication from the development team

Security Audit

• Conducted by reputable security firms
• Past security breaches
• Level of network decentralization

Market Timing and Practical Strategies

Utilizing altcoin season indices and dominance metrics can help more accurately gauge market trends. These indicators serve as vital guides for investment decisions and enable more effective capital allocation.

With proper knowledge and preparation, entering the market can support technological innovation in the digital economy while also offering potential returns. Maintaining a continuous learning attitude and leveraging reliable trading environments are key to success in this rapidly evolving market.

Summary

Since the launch of Litecoin in 2011, the altcoin market has undergone remarkable evolution. Now a vast ecosystem with over 16,500 diverse digital assets, altcoins are no longer just Bitcoin alternatives but established investment targets with unique technological innovations and practical applications.

The key to success lies in thorough research. Carefully evaluating a project’s technical foundation, team achievements, tokenomics, and real-world problem-solving contributions is crucial.

The altcoin market holds limitless potential. With the right knowledge and diligent preparation, investors can contribute to the development of the digital economy while also enjoying attractive returns.