Should I Invest in Bitcoin or other Altcoins? Or Bitcoin Vs Altcoin? As of now, there are more than 10,300 cryptocurrencies (source: Coinmarketcap.com) as shown below:
So even though we can say that Bitcoin is the king of cryptocurrencies and it has been said that Bitcoin will replace Gold, there is definitely more to cryptocurrency than just Bitcoin.
Now many who feel that they have missed out on the Bitcoin bus of enormous wealth creation, feel that there might be other hidden ‘Next Bitcoin’ that can make them rich. And that is why people search for the next best altcoin to buy.
Altcoins are cryptocurrencies or tokens other than Bitcoin. Alt – means Alternative and hence the term, ALTCOIN. So to put it very simply, Altcoins are alternatives to Bitcoin. Read more here at Altcoins.
Now whether you should invest in Bitcoin or not is a different discussion. Or if you plan to invest in a systematic manner vis Bitcoin SIP. But if you are investing in cryptocurrencies, then you need to understand (at least a little bit) about altcoins other than Bitcoin.
But understand one thing here. Bitcoin itself is extremely risky. And altcoins are even riskier than Bitcoin.
I know most people invest or dabble in cryptos without understanding it even a bit. Their argument is that it’s a low-cost chance to win a lottery if they are lucky. And you can’t argue with that. Bitcoin has made many millionaires and even billionaires.
Bitcoin definitely has a first-move advantage. And by investing in altcoins, the investor gets to participate in blockchain-based protocols/projects that may in the future disrupt some industry. And as a result, may lead to enormous wealth creation.
But given the ongoing wave, at times many founders of these altcoins get overexcited. Some of these ‘silly’ cryptocurrency projects seek to solve baseless non-existent problems or are impractical to solve with blockchain. Just look at meme coins. It’s crazy, to be honest. And I am sure that from 10,000+ cryptos in existence today, many will be dead in a few years’ time. They will be virtually worthless.
It is for this reason that one needs to be very careful when looking for altcoins to invest in. Altcoins have the advantage of being much cheaper compared to Bitcoin. But that should not be the only reason to invest in it. It’s like stock markets. Just because a company’s share is trading at Rs 10 doesn’t mean it’s a cheaper plus a better investment than one that is trading at Rs 500.
Please don’t think that I am saying that no other crypto apart from Bitcoin is worth investing in. I am just saying that all 10,000 cannot be good. Some will be worthless eventually and very soon.
So one simple reason to invest in altcoin is a chance to earn better life-changing returns than even Bitcoin if you get lucky (or you pick a coin after proper due diligence and then get lucky).
Another reason to invest in cryptos other than Bitcoin is to have a diversified basket of different cryptocurrencies. The diversification angle. At the face of it, it sounds like a logical reason. Just like we diversify in equity investing. But diversification in the case of cryptos is something different from what I understand. From what I have learned till now (remember I am still a crypto-curious guy and not a crypto-investor), is that most cryptocurrencies have a high correlation and the prices of a majority of them are strongly coupled with the price of Bitcoin. In fact, whenever there is a fall in BTC prices, it is immediately followed by a fall in all other coins (except Stablecoins). And often, then fall in these Alt-coins is much more than the fall in Bitcoin.
Have a look at the correlations among BTC and few prominent Altcoins (image source).
This is a common Crypto correlation table to highlight the correlation between BTC and altcoins. You can call it a Bitcoin altcoin correlation chart. The correlation ranges from +1.00 to -1.00: +1 indicates a perfect positive linear correlation, -1 a perfect negative linear correlation, 0 indicates no linear correlation. As you can see, most of the major altcoins have a high correlation with Bitcoin as the figures are close to +1.0.
Now there is the term used in crypto lingo – Dominance. As you can see below the image, it’s 42% for Bitcoin.
But Bitcoin has a lot more indirect influence on the entire crypto market’s direction and momentum. Bitcoin vs altcoin dominance is skewed towards Bitcoin. And so is the Bitcoin vs altcoin market cap. Though BTC dominance currently stands above 40%, at one time it was more than 60% and higher! Do read about Bitcoin’s reducing dominance.
From what little I have learned till now, it’s actually Bitcoin that drives the entire cryptocurrency market for now. If BTC rises, everything rises. If BTC falls, everything falls.
So even though you might have 20 coins in your crypto portfolio, it might still end up being just a coin diversification and not exactly actual diversification in the true sense. Inspite of holding 20 crypto assets, your portfolio will behave more or less like what Bitcoin does. So what is the solution? I think it’s better to diversify coins based on their blockchain use-cases. But here is the problem, it’s too technical and might not be something that naïve crypto-curious people like me understand today. So let’s leave it.
So if you are clear first about what percentage of portfolio to invest in Bitcoin and other cryptocurrencies, you then need to decide the allocation between Bitcoins and altcoin. Will it be 100% Bitcoin? Or 90% Bitcoin and 10% Altcoins? Or 80% Bitcoin and 20% Altcoins? Or 70% Bitcoin and 30% Altcoins? Or 60% Bitcoin and 40% Altcoins? Or a balanced 50% each in Bitcoin and Altcoins? Or you want to be aggressive with less in Bitcoin and more in altcoins.
I came across an interesting article (link) that talks about how people think about Bitcoins as they discover more and more of the ecosystem surrounding them. Usually, the thoughts go something like this:
- Wow, Bitcoin is amazing! There’s a limit to how many will ever exist and significant control over my own money. How do I get some?
- Mining sounds really cool. That sounds like where the money is going to get made. How do I get miners and start making some Bitcoin?
- Mining looks really hard and difficult. I guess it’s better if I just buy it. Now, where can I go buy some?
- Awesome, now I own some Bitcoin, but what are all these other [ALT]coins? Are they going to take over some time?
- I want to hedge against Bitcoin self-destructing somehow. Maybe I should buy some of these altcoins.
- I can’t possibly look into every altcoin there is, there are just too many of them. How do I choose?
- I know, I’ll just buy the most popular ones since they’re probably the most likely to have any chance at all of beating Bitcoin anyway.
- Hmm, but the popular ones look pretty expensive. Maybe I’ll buy some of these other ones that are just starting.
I know you want to know What Will Be the Next Bitcoin? Or you might want to know that what is your next shot at making a fortune and become a millionaire by investing in the Best Cryptocurrencies other than Bitcoin to Invest in 2022. But it’s not that easy as it sounds unless you are really (really) lucky. The potential reward for being right is high. But so is the inherent risk.
You may ask me questions like Bitcoin Vs Altcoins: What Should You Invest in?, Bitcoin vs Ethereum: Which is a better buy?, Should I buy Bitcoin or Bitcoin cash, Should I buy Bitcoin or Ethereum, Should I buy Bitcoin or Dogecoin, Should I buy Bitcoin or Litecoin, Should I buy Bitcoin or Altcoins, Bitcoin vs. Ethereum vs. Dogecoin: Which one to invest in?
I think if you really want to invest in cryptocurrencies, sticking primarily with Bitcoin is the way to go unless you really learn something useful about some of the altcoins. But if you insist on giving your luck a bit of chance, then maybe put 60-70% in Bitcoin and rest in whatever pleases you for now. It can even be a basket of altcoins. Some examples of popular Altcoins are (listed in order of market-cap):
- Ethereum ETH
- Tether USDT
- Binance Coin BNB
- Cardano ADA
- Dogecoin DOGE
- XRP XRP
- USD Coin USDC
- Polkadot DOT
- Uniswap UNI
- Solana SOL
- Bitcoin Cash BCH
- Litecoin LTC$
- Internet Computer ICP
- Chainlink LINK
- Binance USD BUSD
- Polygon MATIC
- THETA THETA
- Stellar XLM
- VeChain VET
Note – For the latest list of altcoins, check Coinmarketcap. Remember there are 10,000+ of them. But on a few of the major Indian cryptocurrency exchanges, only a few hundred may be available.
So if you were looking for What are the top 10 altcoins? then that’s your answer above. But don’t ask me Which altcoin has the most potential or What is the best altcoin? I really don’t know the answer.
One more thing. The popularity of an altcoin cannot be used as a proxy for its technical superiority or product potential or future returns. Some might do well. Some won’t. Just keep that in mind.
I don’t want to be foolish to say that none of the altcoins will amount to anything. Some will do well. Some might even do push Bitcoin to the second spot in years to come. But the problem is that it’s very difficult for laypeople like us to learn a lot about several of them (due to lack of time and skill) and then predict how successful these might be.
Further Reading – Should you Buy & Hold Bitcoin for 10 Years?
I know it’s not easy to understand that Bitcoin vs altcoin difference and then decide about Bitcoin vs altcoin investment. But nevertheless, I hope I was able to add something useful to what you already knew about Bitcoin or altcoins and about the potential of the Next big cryptocurrency. So if you really want to venture out of the Bitcoin space and into the altcoins, it’s suggested to begin learning a bit more and then look for What altcoins should I buy for 2022 and then, making sure that you go on HODLing it for the long term.