Bitcoin vs Altcoins: Which one is the appropriate investment option?
Bitcoin was the first cryptocurrency to air. Satoshi Nakamoto was the one who created it, and it has been the pioneer of the cryptocurrency market. Altcoins are cryptocurrencies that were later created after Bitcoin came out.
Some of them include Litecoin, Solana, and Dogecoin. Ethereum is also considered an altcoin, but many investors argue that it plays in the same league as Bitcoin. While investing in cryptocurrencies, you have to create a cryptocurrency portfolio that consists of both coins to maximize your earnings. Investors insist that Bitcoin should occupy a greater portion of your portfolio, but altcoins also pose the same risk as Bitcoin. Let’s take a look at some of the differences and similarities between the two to get a better insight into how and where you should invest.
Bitcoin vs Altcoins market capitalization
Bitcoin is the most popular and most-traded cryptocurrency. It has a market capitalization that takes up more than 60%. Altcoins, on the other hand, take up 40% of market capitalization, and they are, therefore, less liquid than Bitcoin. Cryptocurrencies that have higher market capitalization are more liquid.
Bitcoin vs Altcoin price trends
The Bitcoin price influences the prices of altcoins. This is a result of Bitcoin being the first cryptocurrency in the market. Therefore, whenever the price of Bitcoin rises, the prices of altcoins rise too.
Whenever the bitcoin prices fluctuate, it’s also the same for the altcoins.
Bitcoin vs Altcoins consensus mechanisms
Bitcoin uses the proof of work consensus mechanism to create crypto blocks. This process requires a lot of energy, and therefore miners have to work hard to realize profits. Altcoins, however, use a proof of stake consensus mechanism. This model enables the transaction process to be more efficient.
Bitcoins vs Altcoins purpose
Satoshi Nakamoto created Bitcoin to reduce transaction time and the cost of influencers. Altcoins are used to improve the buying and selling of products and services while making use of decentralized finance technology.
Bitcoin can be used as a currency and for trading purposes. Altcoins can be in the form of tokens which can be used for trading.
Bitcoin vs Altcoins trading convenience
When mining altcoins, you can easily use any computer available. When mining bitcoins, though, you need top-of-the-art equipment to process the calculations and transactions.
Altcoins have managed to attract a lot of investors, creating a lot of competition for Bitcoin. A popular form of altcoins is the stablecoins which gain passive income when held for a certain period. These stablecoins can also be lent to centralized finance and decentralized finance, and the lenders are rewarded with native cryptocurrencies once this is done.
Bitcoin vs Altcoin risks
Investing in both Bitcoin and altcoins comes with a huge risk. Each of these cryptocurrencies is highly volatile and associated with technological risks.
In the popularity sector, altcoins don’t quite cut it and therefore tend to have low liquidity. This is also in line with the low market capitalization of 40% they take up. Many investors say that altcoins should not occupy more than 5% of your portfolio.
Altcoins have also come and gone, and therefore you risk losing your investment money if a coin suddenly vanishes from the market. Scammers have been known to design them, and therefore it’s not easy to know which ones are valid. Bitcoin has always remained standing, and therefore people tend to invest more in it.
Before investing in Bitcoin and altcoins, you should consider the following:
- Determine how much money you are willing to allocate to each type of cryptocurrency
- Conduct a market access risk analysis. This will mean taking note of disreputable exchange markets and coins.
- Understand the risks that come with each cryptocurrency, especially for altcoins. Check whether the codes and determine whether they have been audited.
Bitcoin and altcoins are both worthy assets to invest in. Each cryptocurrency is associated with its risks and benefits. If you manage to balance the two, though, you will make the most of your cryptocurrency trading experience.