Although Bitcoin (BTC) is the oldest and still the leading cryptocurrency by market capitalization, there is a whole world of crypto beyond Bitcoin. These types of cryptocurrencies are often referred to as alternatives to Bitcoin, or altcoins for short.
Most altcoins are built in the spirit of Bitcoin, which is a decentralized, blockchain-based currency. But there are different categories of altcoins that serve myriad roles and purposes, depending on the blockchain they’re based on.
Currently there are tens of thousands of altcoins on the market. Ethereum (ETH), which is second in line to Bitcoin, is the biggest altcoin by market cap. Here’s what you need to know about how cryptocurrency works when investing in Bitcoin vs. altcoins.
Bitcoin vs Altcoins
The total global cryptocurrency market has a total market capitalization of roughly $996 billion, as of July 26, 2022, according to CoinMarketCap.
Bitcoin, the leading cryptocurrency, holds about 41.7% of the crypto market share, and Ethereum, the second-largest crypto, accounts for about a 20% share of the total crypto market. The rest of the crypto market is comprised of altcoins.
While Bitcoin is larger and well established, many altcoins are smaller, have lower valuations, and may be more experimental or innovative. Given Bitcoin’s enormous increase in value over its 13-year span, some investors who are interested in buying cryptocurrency may hope to find an altcoin that could deliver the same outsize returns. But as with anything in the investing world, there are no guarantees.
As of July 2022, Bitcoin itself, along with most other crypto, has also seen a dramatic drop in value since its all-time high of about $68,000 in November of 2021.
💡 Recommended: Bitcoin’s Price History
Given that cryptocurrencies are still a speculative asset class, both Bitcoin and altcoins are volatile.
Both Bitcoin and altcoins have similar characteristics. They are both peer-to-peer systems that can be used as a medium of exchange to purchase goods and services in digital transactions.
In order to purchase either Bitcoin or altcoins, investors need a digital wallet to buy, sell or store these assets. Both types of cryptocurrencies are decentralized, which means there is no third party needed to process transactions, nor is there a central entity to control the particular Bitcoin or altcoin network.
The chief differences between Bitcoin vs. altcoins include:
• Longevity. Bitcoin has been around much longer than any altcoin.
• Value: The price of BTC is historically higher than any altcoin.
• Utility: While Bitcoin is considered a store of value, many altcoins offer different functions or capabilities compared with Bitcoin.
Bitcoin vs. Altcoins: Similarities and Differences
|Bitcoin and most altcoins are volatile forms of crypto.||Bitcoin has a 13-year track record, longer than any altcoin, which may help investors understand how Bitcoin performs in different economic environments.|
|Both types of crypto are based on blockchains, are considered decentralized and are run on peer-to-peer networks.||While BTC is worth about $21,100, as of July 26, 2022, altcoins vary in value from thousands of dollars to less than a cent.|
|Bitcoin is considered a store of value, whereas altcoins may offer innovative functions and purposes.|
Broadly speaking, altcoins are viewed as any type of crypto other than Bitcoin. Many altcoins were launched after a fork from Bitcoin (or another blockchain like Ethereum). Typically, altcoins are designed to address specific issues like transaction speeds or security factors, or to facilitate other functions on a specific blockchain.
The first altcoin was Litecoin, which was a fork of the Bitcoin blockchain that launched in 2011. Because there weren’t many Bitcoin competitors at that time, the term “altcoin” came into being to describe the new arrivals.
In addition to Ethereum, which is the second-largest crypto after BTC, other altcoins in the top 10 by market cap include Binance coin (BNB) and XRP (XRP), among many others.
One specific type of altcoin is known as a stablecoin, which are cryptocurrencies that are pegged to an underlying asset like the U.S. dollar. Two of the biggest stablecoins by market cap are Tether (USDT) and USD Coin (USDC).
💡 Recommended: Altcoins vs Stablecoins
Another type of altcoin is known as a utility token. These are cryptocurrencies that are used on a particular blockchain to pay for or execute particular functionalities on that platform.
Security tokens are altcoins which offer digital representation of a physical asset or a digital contract that provides ownership to an asset that holds value like a stock, home, or car.
Pros and Cons of Altcoins
|Can be a high-yielding asset||Not all altcoins will exist in the future|
|Altcoins offer ways to diversify your crypto portfolio||Bitcoin provides stiff competition|
|Some altcoins were created to improve upon the Bitcoin model||Some altcoins are unavailable to trade on crypto exchanges|
|There are thousands of altcoins for investors to choose from||Altcoins are volatile assets|
Bitcoin was the first cryptocurrency to be created in 2009 by a person or group of people using the pseudonym Satoshi Nakamoto.
To understand Bitcoin’s significance and what Bitcoin is: Bitcoin was the original form of digital cash, based on a blockchain that acts like a ledger, recording all transactions on the decentralized peer-to-peer network. This means, every transaction ever made using Bitcoin can be verified. Bitcoin’s network uses encryption which allows individuals across the world to exchange and transact in Bitcoin securely and anonymously.
Since Bitcoin is decentralized, it’s not governed by a central authority, and no one entity controls it. Bitcoin is considered a scarce cryptocurrency. There can only be 21 million BTCs created. This characteristic is said to make Bitcoin’s value increase over time.
Since its inception, Bitcoin has seen an all-time high of about $68,000. Currently it’s worth $21,100, with a market cap of more than $403 billion, as of July 27, 2022, with over 19.1 million BTC in circulation.
Pros and Cons of Bitcoin
|Bitcoin has the strongest fundamentals and is easily accessible||Adoption is growing but still limited|
|Bitcoin has a history of providing investors with outsize gains*||But Bitcoin is a volatile asset, and also has a history of outsize losses|
An increasing number of altcoins are hitting the crypto scene leading to new innovations in the crypto market. Bitcoin is undoubtedly the crypto leader, but as altcoins are taking more of the crypto market share it’s important to pay attention to what these crypto alternatives bring to the table.
Although many altcoins got their starts when developers created a fork of existing blockchains like Bitcoin and Ethereum, that doesn’t make altcoins replicas in any way. On the contrary, most altcoins offer important innovations or solutions to existing blockchain problems. Many serve important functions as utility tokens on a given blockchain, or security tokens in the wider market.
Could an altcoin overtake Bitcoin?
There is always a possibility that another cryptocurrency could overtake Bitcoin but no one can predict the future. Right now, Bitcoin is the most dominant cryptocurrency on the market, but there are cryptos that have blockchain networks that operate differently and offer different applications that Bitcoin doesn’t.
Why does Bitcoin have a higher value than any altcoin?
Bitcoin dominates the crypto market; its trading volume and market cap are unmatched. It was the first of its kind, and its network is larger than any other altcoin. Bitcoin is used as the benchmark to measure how altcoins and the cryptocurrency market as a whole is performing.
Is Ethereum an altcoin?
Yes. Every crypto that is not Bitcoin is considered an altcoin. Ethereum is the second largest cryptocurrency by market capitalization right behind Bitcoin.
SoFi Invest refers to the two investment and trading platforms operated by Social Finance, Inc. and its affiliates (described below). Individual customer accounts may be subject to the terms applicable to one or more of the platforms below.
1) Automated Investing and advisory services are provided by SoFi Wealth LLC, an SEC-registered investment adviser (“SoFi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC.
2) Active Investing and brokerage services are provided by SoFi Securities LLC, Member FINRA(www.finra.org)/SIPC(www.sipc.org). Clearing and custody of all securities are provided by APEX Clearing Corporation.
For additional disclosures related to the SoFi Invest platforms described above, including state licensure of SoFi Digital Assets, LLC, please visit SoFi.com/legal.
Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform. Information related to lending products contained herein should not be construed as an offer or pre-qualification for any loan product offered by SoFi Bank, N.A.
Crypto: Bitcoin and other cryptocurrencies aren’t endorsed or guaranteed by any government, are volatile, and involve a high degree of risk. Consumer protection and securities laws don’t regulate cryptocurrencies to the same degree as traditional brokerage and investment products. Research and knowledge are essential prerequisites before engaging with any cryptocurrency. US regulators, including FINRA , the SEC , and the CFPB , have issued public advisories concerning digital asset risk. Cryptocurrency purchases should not be made with funds drawn from financial products including student loans, personal loans, mortgage refinancing, savings, retirement funds or traditional investments. Limitations apply to trading certain crypto assets and may not be available to residents of all states.
Investment Risk: Diversification can help reduce some investment risk. It cannot guarantee profit, or fully protect in a down market.