Altcoins – Great investment opportunity or a new bubble

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Alternative cryptocurrencies: a great investment opportunity or a new bubble?

The world of digital currencies is not only about bitcoin. In terms of capitalisation, the market share of this oldest cryptocurrency fell below 50% at the end of 2020 and the down trends goes on. In December 2020, bitcoin’s share of the total cryptocurrency market was 90%, while in the meantime many other cryptocurrencies came into existence closing the gap significantly.

These currencies known as altcoins („alternative cryptocurrencies“) are hailed by many investors. No wonder, the pace at which they emerge is dramatically accelerating. The total value of some selected altcoins as of 1 January 2020 was as follows:

  • Ethereum: USD 86 billion,
  • Ripple: USD 108 billion,
  • Litecoin: nearly USD 14 billion,
  • Monero: USD 6.1 billion.

Bitcoin Cash is a remarkable phenomenon as well. It emerged after splitting from Bitcoin (known as a hard fork) in August 2020 as a result of long-term disputes within the bitcoin community. Nowadays, its value is USD 41 billion, primarily owing to the entry to Coinbase. However, some voices point out to unfair manipulative practices with the value of the new crypto.

Miners and investors – another side of the coin

Similarly to bitcoin, most of altcoins get into the digital deposits through mining. Miners provide the blockchain system with computing capacity in order to carry out crypto transactions (transfer of cryptocurrency from one wallet to another). They get a reward in form of new units of the digital currencies.

To avoid devaluation, the final number of units is limited from the start (ethereum is an exception). The reward for the computing capacity declines exponentially and the mining process is more and more affected by the growing demands for hardware.

With the declining efficiency of the mining process the position of cryptocurrencies is still good enough to motivate miners to execute crypto transactions. The growing rewards for the processing of blockchain operations play also a role (e.g. each bitcoin transaction is charged a few cents or dollars).

Era of new cryptocurrencies

The second half of 2020 was the first golden age of digital currencies. The total value of all cryptocurrencies reached hundreds of billions US dollars. The same as real estate or gold, bitcoin has become a strong investment instrument.

In parallel, dozens of new cryptocurrencies are emerging. Right now, there are more than a thousand cryptocurrencies, of which only a handful is worth attention. Visionary ambitions are associated for instance with the OTN token. The „Open Trade Network“ concept aimed at interconnecting individual blockchain networks with yet non-existing cross-chain technology to make the exchange of cryptocurrencies simpler without having to rely on third parties.

The arrival of new altcoins is also accompanied by a new phenomenoninitial coin offerings. ICO means a prioritised offering of cryptocoins to some selected investors to enable further capitalisation. In the past, the phenomenon of ICO was the driving power for the rise of Ethereum’s price.

The principle of ICO is similar to the one used for the initial start-up investments during the first boom of online companies, giving birth to giants such as Google, eBay or Amazon now having colossal impact on their industries. The same ambitions are expected from the digital currencies.

Where to get altcoins

The easiest way to get new cryptos is mining. (The description of this process is beyond the scope of this article). A second option is to buy the cryptos at exchanges.

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Don’t be shy! Go to reliable exchanges with a proven track of altcoin trading that are trusted by a large community and experts such as Coinbase or CoinMate.

Think twice before you start. Fraud may occur in the currencies in circulation. Fraudulent issues of altcoins (known as „scamcoins“) haves stolen money from many investors. As an example of such as a Ponzi scheme I can name OneCoin. The promoter of the project – Onecoin Ltd. – put its own interests over those of the investors selling the crypto once the value reached a profitable level.

How to make money with altcoins

You can be a traditional user exchanging USD for cryptocurrency at a certain rate, just like when exchanging for other currencies for your holiday abroad.

Leave your altcoins in your wallet or at an exchange. Later on, once the value of your cryptocoins has increased, take the crypto and convert it back into your previous currency. Ideally, you will get a multiple of your initial investment. If you had retained all your money in bitcoins from 1 January 2020 to 31 December 2020, you would have earned around 1300 %, i.e. 13 times as much as you had at the beginning of the year.

On the other hand, you can use cryptocurrencies for speculating and earn money in the short run in the same way as on Forex. You can do this for example with IQ Option.

With the traditional way of holding cryptocurrencies, you cannot use leverage for trading. It might be better not to use it, because it might seem difficult to comprehend in the beginning. However, there is nothing that complicated about leverage trading as it may appear at first sight.

Leverage trading offers you to multiply your initial investment. If you have on your trading account, let’s say 10 000 USD and use a leverage of 1:10 you can open trades as if you had on the account 100 000 USD. Your earnings will potentially be ten times bigger. The bad news worth mentioning is that the same principle also applies to the opposite direction, when you lose.

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More about the author Step

I’ve wanted to build a business of some kind and earn money since I was in middle school. I wasn’t very successful though until my senior year in highschool, when I finally started to think about doing online business. Nowadays I profitably trade binary options full-time and thus gladly share my experiences with you. More posts by this author

Forget About Bitcoin: These are the Altcoins to Watch in 2020

Whether you call it a scam, passing fad, or a big bubble just about to burst, Bitcoin’s popularity and its rally against the dollar continue to baffle both cynics and enthusiasts. However, is bitcoin the only cryptocurrency worth the risk? There are other altcoins to watch. Read on to find out.

As crypto faithful investors continue to look for the next bitcoin, it is equally important to note the financial implications that surround the cryptocurrency craze. Right now bitcoin is playing out in such a big way that no one wants to miss out. According to George Tung, co-founder of Cryptos R Us and a prominent investor in digital currencies, there is an untapped investment opportunity in lesser-known coins. Asked about the possibility of another coin exceeding Bitcoin’s market cap, he said, “Yes, I believe that is definitely possible within the next three to five years.”

Another financial expert concurs:

The alts industry is new and it will take at least a few years to become mainstream…we can see 10x gains—like the bitcoin this year, in many altcoins,

said Hitesh Malviya, a consultant associated with Hitesh believes that bitcoin might be leading the way right now, but eventually, the big achievements in cryptos are elsewhere.

Altcoin Market Situation in 2020

Currently, the crypto market has more than 1,300 altcoins. With that big number, it’s not easy for both aspiring and existing investors to filter through the maze and uncover a coin with investment potential other than bitcoin. Tung provides a four-part checklist to determine which alt-coin may be a long-term winner.

  1. Study the source. “Where do they come from? Have they been involved with other cryptos before? Are they backed by anyone? What kind of experience do they bring? The alt-coins that have done the best and have the highest market caps have the most proven teams.”
  2. Consider the why. “How useful is this? Are they trying to solve a problem that doesn’t need solving? Some alt-coins coming out are simply ridiculous.”
  3. Find out their position in the process. I look at the roadmap of the alt-coin and see how far along are they. Do they have a test-net or beta? Are the new features being released? Are there soft or hard forks coming up?”
  4. Review the valuation. “Since all alt-coins get pumped and dumped a lot, I look at the current market evaluation and see if they are priced right. A lot of alt-coins are priced way too high and I tend to stay away from them.”

Abreast with these tips, analysts recommend seven digital currencies, other than bitcoin, which you should watch in 2020. Even so, the disclaimer is that all cryptocurrencies, Bitcoin included, are prone to great volatility and risk. Before you take the plunge, it’s advisable to do your due diligence and dig up more information about your preferred currency.

Cardano (ADA)

The #1 currency for us in 2020. 10x potential.
Market cap, as of Jan. 5: $27 billion

Performance in 2020, as of Jan. 5: +5100%

Source: Ethereum Co-Inventor and former CEO Charles Hoskinson

Takeaway: People praise this altcoin as the 3rd generation of blockchain and cryptocurrency! Bitcoin being the first one. Ethereum the second one.

Cardano (ADA) is a

cryptocurrency that is developing a smart contract platform which seeks to deliver more advanced features than any protocol previously developed.

One of the advanced features is to input more information in each transaction. Bitcoin and other Altcoins have only the function to reasign value. With Cardano, the developers want to give out the possibility to also give out access to deeper accounting and other data, so the blockchain can be used in more business cases.

It will also offer quantum resistance signatures, meaning that there are even more combinations of characters to form a private key, which means that in future computers will not be able to guess the private keys.

Cardano will also focus on sidechains as much as possible. This is to allow better scaling and more functionalities.

Litecoin (LTC)

Market cap, as of Dec. 19: $19.53 billion

Performance in 2020, as of Dec. 19: +9,080%

Source: Charlie Lee, former Google employee

Takeaway: analysts and investors describe it as the silver to bitcoin’s gold.

Charlie Lee created Litecoin back in 2020. Since then, the currency has been a suitable bitcoin substitute. Without getting too wonky, Lee’s major aim was to reduce the time required to validate new transactions. The creation of Litecoin also sought to give everyone the opportunity to mine cryptocurrency. According to Lee’s statement on Litecoin, “My vision is people would use Litecoin every day to buy things. It would just be the payment of choice.”

In addition, Litecoin was meant to produce more coins in the market. With 84-million coin cap, it exceeds Bitcoin’s 21-million limit by far. Currently, 54 million Litecoins are in circulation against Bitcoin’s 16.7 million.

Monero (XMR)

Market cap: $5.9 billion

Performance in 2020: +3,033%

Source: Anonymous (much like bitcoin)

Takeaway: Monero’s takeaway is the anonymity that it brings to the table. While the coin utilizes the blockchain technology to make everything transparent, every detail remains untraceable. Transaction details including size, senders, and receivers are concealed such that no one can trace them, leading to complete anonymity. However, some analysts argue that the feature might favor the interest and operations of cybercriminals.

Even so, every cryptocurrency has its share of challenges and vulnerabilities. There are cases where hackers demand bitcoin and Monero lovers argue that the currency can be a suitable bet for users who would like to circulate money without the knowledge of their competitors. For instance, a trader who would prefer to remain anonymous or a businessperson in a foreign country trying to conceal identity to avoid becoming a target would find Monero more convenient. According to a recent report by Monero, popular musicians in the entertainment sector already expressed interest in Monero. Currently, nearly 15.5 million XMR is in circulation and the currency has no fixed coin supply.

Market cap: $5.1 billion

Performance in 2020: +69,219%

Source: Da Hongfei (CEO of Onchain) and Erik Zhang

Takeaway: It is dubbed the “Ethereum” of China.

According to Tung, the Neo will experience an exponential growth when China lifts the conditions imposed on bitcoin and ICOs. With a market cap of 61 billion dollars, Ethereum comes second after Bitcoin. This is a clear indication that the currency has a long way to go.

Recently, the founder Da Hongfei dispelled fears that cryptocurrencies are getting overheated. “I would say that there is a bubble in this industry, but would say it’s OK…Every technology that is so disruptive—there’ll definitely be bubbles, like the train or the automobile.” Da Hongfei said in a recent interview with CNBC. Created in 2020, Neo has a market circulation of 65 million from its target of 100 million coins.

Bitcoin Cash (BCH)

Market cap: $37.08 billion

Performance in 2020 (since July): +488%

Source: a hard fork of original Bitcoin, currently controlled by a team of developers

Takeaway: one of the newest digital currencies in the market

Bitcoin Cash is incompatible with the original bitcoin, making it independent. The currency was created to solve the issue of high fees and network congestion that was associated with the original Bitcoin. The cryptocurrency has the capacity to handle bigger transactions faster, even with lower processing fees. A thoughtful discussion regarding BCH and the original coin is available here. All the same, Bitcoin Cash still struggles with adoption. The main challenge is to convince the businesses and investors to use both the original bitcoin and its rival network. Another challenge is to convince miners to take part in clearing transactions. Sometime in November BCH raced to become the second most valuable digital currency, beating Ethereum. However, it fell back and is currently in the third place. The current supply in the market is 16.8 million out of its cap of 21 million coins.

With the changing cryptocurrency landscape, this guide may not be exhaustive. It’s also important to note that the figures given in this article are as of December 19, 2020. Other digital currencies to watch are Cardano, Ripple, and Iota. However, it does provide a snippet of what to look for in the cryptocurrency ecosystem.

Image from Shutterstock

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How to Find Your Next Cryptocurrency Investment

The advent of Bitcoin and its stellar rise over the last few years has investors pouring their money into cryptocurrencies by the millions. Cryptocurrencies and blockchain projects achieved impressive returns, as well as dramatic declines.

Now, others who seek to emulate the returns of their peers are looking for the next big thing in the market. There are currently hundreds of alternate cryptocurrencies, referred to as “altcoins.” Often the newest ICO, or initial coin offering, represents an opportunity to multiply one’s investment , but they are also highly risky. However, it’s hard to predict which coins will receive the most attention and why. With the right recipe, a cryptocurrency can achieve sustainable growth and keep it once the bubble pops.

Find the ICOs

The first step is to figure out which initial coin offerings are coming up. With sites like ICOalert, developers have a place to list their upcoming pre-sale and public sale. They can also list other information like the soft cap, buy-in price and team profile. Savvy investors can use sites like these to plan their entry, do research, and have their money ready to invest in the best events.

The popularity of ICOs is shooting through the roof with data supporting the hype.

“ICO Alert has seen our amount of unique daily users double every 2 to 4 weeks. The growth is incredible, and validates our view that the community wants an unfiltered list of ICOs. ICO Alert remains the only free-to-list ICO website and the only comprehensive list of active and upcoming ICOs, so we expect the growth to continue,” said Robert Finch, the founder of ICOAlert.

Evaluate the Opportunity

While the rare ICO captures the attention of investors and raises the cryptocurrency it requires, many will inevitably fail,. Studying the market is not complicated and gives one a good idea of how the coin will fare.

How unique is the idea?

There are millions of ways to use blockchain, and new ideas are cropping up every day. Currently, the market is not impressed with coins that simply recreate the “decentralized currency” model, nor should they be. Bitcoin was a revolutionary idea when it was first invented, but now all cryptocurrencies share its functionality. Look for something that puts a new spin on an old concept or seeks to accomplish something ambitious. If you see obscure or regurgitated language on the project’s website, stay away because it might be a scam.

Distribution of the currency

The smart contract that manages the coin’s distribution has specific rules, like how much will be made available, to whom, when, and whether unsold coins will be “burned” (destroyed) or not. Typically, the scarcer a coin is in relation to its supply, the more it will fetch on the open market. Look for information on how many coins will be sold in the closed pre-sale (and what the bonus is for buying at that time), the ICO time window, and more.

Exchange plans

The most bullish thing for any cryptocurrency is to be listed on an exchange. If a place like Coinbase, Bittrex or Kraken announces plans to list a coin that is still in its ICO phase, this is an excellent sign.

Which blockchain is it built on?

New ICOs must be launched from an existing blockchain, unless they plan on building their own. The chain that the coin is built on determines which existing cryptocurrency one will use to participate in the ICO. A project using Ethereum’s blockchain will require Ether to purchase the new coin. Thus, at first it will be exchangeable only with Ethereum and no other cryptocurrencies. If it uses an obscure chain such as NEO, this could put a cap on price.

Who is on the team?

Look at the team’s composition for expertise and experience in the industry. Every real project will publish a short profile of each member, their history and individual role. A big team full of veterans is favorable.

All about the assets

The white paper is by far the most important determinant of a project’s seriousness. It should be comprehensive, thorough, and explain the technology and purpose of the coin well. Other assets can include videos, blog posts and other contributions from the team.

Check the community

Lastly, the community is a crucial indicator of a cryptocurrency’s potential. Cryptocoins have followings that gather online on websites like Reddit and Github is a great resource as well, and those who can read code can see get a glimpse of how well the project is programmed. Social media is less important, but can also be useful. The hype that a coin receives has a close relationship with its eventual price, because those talking about it are usually investors themselves. Beware of bounties however, a practice that crypto startups use to reward those who spread the good word. Form your own opinion and always take another’s with a grain of salt. (See also: Here’s What’s Next for the Bitcoin Bubble)

Investing in cryptocurrencies and other Initial Coin Offerings (“ICOs”) is highly risky and speculative, and this article is not a recommendation by Investopedia or the writer to invest in cryptocurrencies or other ICOs. Since each individual’s situation is unique, a qualified professional should always be consulted before making any financial decisions. Investopedia makes no representations or warranties as to the accuracy or timeliness of the information contained herein. This article was first published on September 7, 2020, as of that date the author owned cryptocurrency.

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