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What are the Risks and Opportunities in Investing in Altcoins

July 24, 2021

Reading Time: 3 minutes

Bitcoin has dominated the crypto scene since its inception in 2009 by the pseudonym Satoshi Nakamoto, both by market capitalization and popularity. In recent times, however, altcoins have eaten into Bitcoin’s market share. According to Coin Metrics, Bitcoin’s market share fell from about 70 percent to 45 percent this year alone.

Most of the altcoins have risen in value due to their innovative approaches in addressing specific communal defects, and in some cases ironing out Bitcoin’s defects. For instance, the development of Ethereum focused on making a new scalable crypto, a common problem in Bitcoin. Such approaches in the different altcoins designs and the associated Bitcoin investment risks, are responsible for the rise in their values in 2021.

Altcoin Investment Risks

  1. Volatility

Like Bitcoin, volatility tops the altcoin investment risks. Volatility implies that altcoins are subject to market swings, which can have crypto values dropping or rising sharply. For instance, Dogecoin has surged about 10,000 percent in value this year alone, landing a spot in the top ten cryptocurrencies by market capitalization. Dogecoin’s value is dependent on its perceived value at that particular point in time.

Most altcoins, like Dogecoin, have no intrinsic value because they are unbacked by physical currency or a commodity. Thus, altcoins are subject to market manipulation by unscrupulous crypto industry players who create artificial conditions for unfair trade.

  1. Inadequate Regulation

The crypto industry developed with one key value in foresight- the necessity of decentralizing finance systems and democratizing finance to give individuals control over their finances. Even though the advantages of these goals are clear, crypto investors overlook the disadvantages.

Investing in altcoin has become risky due to the lack of proper regulatory infrastructure around crypto. Unlike in centralized finance, where the Securities and Exchange Commission(SEC) overlooks the financial and investment processes, altcoin investment largely remains unregulated.

Unregulated industries may result in market manipulation, fraud, loss of investment, and unsteady growth of the sector.

  1. Fraud

Investing in altcoin puts the investor at risk of being preyed on by crypto scammers. A common way fraud takes place is through Initial Coin Offerings (ICOs). ICOs have replicated the operation of IPOs from the mainstream financial markets as means of raising funds for new cryptocurrency ventures. ICOs have matured with the advent of altcoins in the market.

The whitepapers of new coins offering ICOs usually describe the ICO process and a fixed amount of money charged per coin to investors who get motivated by the belief in the coins’ future potential.

However, scammers have in some instances developed fake cryptocurrencies, organized ICOs, and scammed investors.

Altcoin Investment Opportunities

The altcoin market cap stands at about $1 trillion at the time of writing this article. The ever-increasing altcoin market cap and the dwindling Bitcoin market share attest to the need for crypto enthusiasts to take advantage of the available altcoin investment opportunities. Below are some reasons to consider altcoin investment opportunities:

  1. Affordability

Bitcoin costs about $32,420 to buy from crypto exchanges. Conversely, altcoins are far much cheaper than Bitcoin. Ethereum, for instance, costs about $2,072 at the time of writing, while Dogecoin costs less than a dollar.

The low costs of altcoins make it possible for investors to buy many units, hence high-profit margins. Hodling altcoins have the potential of making investors millionaires.

Case in point: Tommy and James, two brothers from Westchester, New York, and their family members had invested about $7900 in Shiba Inu in February 2021. In just two months, they had become millionaires, with the $7900 investment yielding about $9 million.

  1. Mainstream Adoption of Altcoins

Altcoins are fast going mainstream, thanks to increased retail and corporate adoption. Respected crypto enthusiasts like Elon Musk have great influence over altcoin adoption. Musk is responsible for Dogecoin’s popularity just by voicing his support for the meme altcoin.

Paypal, a fintech giant, added the ability to sell and buy altcoins through its platform. Such a move has a direct effect on the acceptance of altcoin amongst commercial businesses.

Grayscale investment trust is another big firm that has heavily invested in altcoins like Ethereum. In doing so, Grayscale has diversified its investment portfolio by having about ten percent altcoin in the portfolio.

Best Altcoin to Invest in 2021

There are over 7000 altcoins in the market, making it hard to select the best altcoin to invest in 2021. Topping the list are Ethereum, Dogecoin, Polkadot, Tether, Shiba Inu, Bitcoin Cash, and Cardano. Ethereum is particularly a favorable altcoin investment option since its underlying technologies support decentralized apps. More and more dApps and tokens are continuously being developed in the platform, making it a sustainable investment. Another promising altcoin to invest in 2021 is Polkadot. Polkadot supports interoperability, making its model sustainable and highly profitable.

CONCLUSION

The adoption of altcoins is fast overtaking Bitcoin.  Altcoins, therefore, offer massive investment opportunities to crypto investors while at the same time creating a risky investment ecosystem, as shown above.

Bitcoin investment risks such as Bitcoin crashes should sound alarms to crypto investors who do not diversify their portfolios by investing in altcoins.

At mycryptoparadise.com, we offer you educative insights into crypto investment and crypto signals to help you make informed decisions while trading crypto.

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