On the Practical and Investment Significance of Altcoins

Алёна Инжеева
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We all know about Bitcoin and its growing popularity around the world. Besides Bitcoins, there are many other digital coins in circulation. These coins, taken together, are known as altcoins. The basic structure of altcoins and Bitcoin is similar. Other coins and tokens were created after the resounding success of Bitcoin. Some appeared on the basis of an already existing blockchain, and others went the more complicated route and created their own platforms. There are many types of altcoins, depending on their purpose. Some of them simply copy each other, while others enjoy unique technologies and features.

Bitcoin-only investors argue that the market is over-saturated with digital products. According to Bitcoin maximalists, altcoins are good for making short-term profits, but, if we talk about long-term investments, they are useless. What do experts think about this? Do altcoins really have no practical and investment value?

Practical significance of altcoins

Altcoins have both advantages over top cryptocurrency and disadvantages. You can store altcoins for a very long time in the hope that their value will someday grow significantly, or you may lose all the investments. However, let's focus on the positive aspects of different coins and tokens:

  • Evolutionary technologies. Many coins are created on the basis of existing blockchains and are their improved copies. With each new project, the possibilities of altcoins are becoming wider, which is a direct evidence of the evolution of blockchain technology.
  • Unique features. Unlike bitcoins, altcoins have a wide range of functionality. They can solve problems and aren’t just a means of payment.
  • Availability. Altcoins are easier to trade than bitcoins. And the price is usually much lower.

But what is the practical significance of altcoins and how can one use them? To understand the issue, we asked the experts why crypto enthusiasts did not limit themselves to a few coins with unique features and whether we needed such diversity at all.

Fighting the Bitcoin monopoly

During the discussion of the practical significance of altcoins, the opinion of experts was split. Some of them believe that the chief value of alternative coins lies in their name. Many existing projects offer an alternative to Bitcoin, which is a fight against monopoly. In fact, this is just embedded in the ideology of cryptocurrencies. Satoshi Nakamoto, creating Bitcoin, wanted to make financial relations free and equal between all participants.

Despite the apparent oversaturation of the market, a wide variety of altcoins gives the investor a choice. Everyone decides for himself which coin to invest in, based on the ‌funds or personal goals. What do the experts say about this?

Egor Abramov, Principal of the Fort Ross Ventures, expresses his opinion on this matter, saying,

“All coins can be roughly divided into protocol coins and tokens. A protocol coin is associated with a specific blockchain. For example, BTC is in the bitcoin blockchain, ETH is in Ethereum, SOL is in Solana, etc. Tokens are associated with blockchains according to the principle “one blockchain, many tokens”. There are few protocol coins, about 200. About 70 of them are actively working. The rest of the coins are tokens, mainly on the Ethereum protocol.

“The answer to the question ‘Why do you need so many?’ is like the answer to the question ‘Why are there 30 million private enterprises in the US?’. Because people create and try to develop businesses. The strength of any system is in diversity.”

Dmitry Noskov, an expert at crypto exchange StormGain, agrees that altcoins were designed to break the monopoly of Bitcoin, but they have not succeeded in doing so yet. Therefore, if we consider their huge number on the market in this aspect, then the more there are, the sooner this goal will be achieved eventually. These are projects, each of which seeks to create something new and enter the market with an improved economic and technological model. In addition, each individual altcoin is developed for a specific task and has its own unique purpose, which is why there are so many of them.

Independent financial expert Alexander Ryabinin shares his comment with the readers of our magazine, saying,

“Of course you need variety. Each coin or token is individual in terms of the crew, idea, and speed of implementation. This is what its significance is based on, and you are investing in the project with all the implications. It’s like stock trading. Actually, this answers the question why it is impossible to limit ourselves to a few coins.”

Altcoins as a diversification tool

Every trader knows the maxim “Don't put all your eggs in one basket”. It is common knowledge that the crypto portfolio should be diversified, as this will help minimize risks. Cryptocurrencies are extremely volatile, with some going up and others going down. That is why it is important to be owners of different assets and periodically rebalance the portfolio. Experts agree that the key value of a wide variety of altcoins is that they allow investors to avoid concentration of funds in one or two coins.

Derek Lim, Head of Crypto Insights at Bybit, details the benefits of alternative coins as follows,

“I must say right away that we do not give investment recommendations for specific tokens. Generally speaking, altcoins can be useful investment vehicles for hedging, diversification, or short-term trades. While many of the altcoins are speculative in nature, investors can invest their money in projects they believe in, in which case for them the benefit of the altcoin is measured not only in monetary terms.

“The idea of ​​a decentralized economy is a limitless and unrestricted space where asset owners can control their own finances. And most investors, even with diversification in mind, are likely to concentrate their assets in a few major coins. But there is enough space for the niches of the tokenized economies with small communities of investors. As in the traditional world, international trade is dominated by a few currencies, but this does not negate the possibilities of a highly profitable and dynamic global forex market supported by dozens of smaller fiat currencies through short/long trades.”

Victoria Ustimenko, CEO of the PRETOBUSINESS PR agency, agrees that altcoins allow you to diversify investments and make the crypto industry a broad business market, rather than a narrow product in Bitcoin, digital gold. The expert considers this a positive point, since altcoins have extended functionality and at the beginning of the ICO era allowed some successful startups to be born. To some extent, they replaced venture capital, which, of course, helped the entire economy. Even taking into account the gray area of ​​business and taxation, new jobs appeared and people could increase their own wealth and bring new technologies to the market.

Sergey Khitrov, Founder & CEO of Listing.Help, shares his opinion on this matter, saying,

“According to CoinMarketCap, there are approximately 19,000 cryptocurrencies currently in existence. However, only a small part of them are popular. This is easily confirmed by the fact that with the current market capitalization of $1.8T, the top 30 coins account for approximately 85% of the entire market. As a result, few people know about coins already outside the top 500.

“Yet the number of coins shows a wide interest in the market, and there is a possibility of freely creating your own cryptocurrency solutions. This is a direct consequence of the principles of openness and decentralization embedded in the cryptocurrency. As a result, it is investors and users who, by their actions, check the viability of cryptocurrency projects, and the creators of altcoins offer new hypotheses. Such diversity is vital for further development of the industry. Altcoins that pass such a test, showing their technological viability and demand from the community, grow significantly in price. They can even break the correlation with Bitcoin that is usual for the market. This is precisely the investment attractiveness of altcoins.“

Dmitry Noskov agrees that it makes sense to use altcoins, in particular, to diversify your crypto portfolio, so as not to keep money only in Bitcoin. The expert also notes that Bitcoin still has a too high market value, and private investors may consider altcoin as a more affordable alternative.

New technologies and functions

The beauty of altcoins lies in their diversity. Bitcoin is very simple and fundamental. The main point of its application is its use as a means of payment and an asset for investment. All subsequent projects that were created after the first cryptocurrency set themselves the goal of endowing the coin with unique functions and technologies in order to differ significantly from Bitcoin. This has spawned many useful coins and tokens that help users solve a range of tasks. Experts also share this position, believing that the practical significance of altcoins lies in the various functions and technologies implemented in crypto projects.

Analyst Aziz Kenzhaev notes that most altcoins are tied to certain projects that have value. The value lies not only in the development of Web3 and blockchain technologies but also in the development of future technology in general.

He says,

“Each project—Wink, The Graph, Fantom, Solana, etc.---contributes to the development of Web3, and each of these projects has its own coin, which in most cases performs the function of network security, rewarding network members, etc. If you choose an altcoin for investment, first carefully study the project to which it is related.”

Derek Lim emphasizes that the crypto space is in its infancy. This means that the crypto industry will inevitably face many growth problems that will need to be fixed and improved in many iterations. Diverse altcoins serve different purposes, solve distinct problems, and cater to various users who consume resources in this space at different levels.

The expert adds,

“Having just a few monopoly projects would lead us into a crypto space that is neither dynamic nor multifaceted. We also would not be able to solve numerous problems in an environment where projects are too limited in number and variety. For example, issues of throughput, partition tolerance and security for the base layers, composability for DeFi protocols, and pricing mechanisms for NFT projects. All of this requires distinct projects (and therefore altcoins).”

Danatar Atajanov, Brand-manager at OXLY.IO, agrees that different altcoins have different practical implications. DeFi, GameFi, IoTT, although they are built on the blockchain and combine many developments, have their own characteristics. Constant development, the emergence of "improved" versions and forks of existing protocols, these phenomena occur constantly and diversify and increase the number of coins on the market. It is not for nothing that news about the emergence of a new killer “Ethereum” is heard with enviable constancy.

According to the expert, the ICO boom is also one reason which explains the emergence of so many new coins. Successful sales of some new tokens are spurring the emergence of followers. With weak regulation, this is easy. Often the history of new coins is limited to pump and dump and ends with an exit scam.

Marat Mynbaev, investor, expert in fundamental and technical analysis, Founder of Amir Wallet, shares his thoughts on this matter, saying,

“Everyone has the right to become an entrepreneur and an active participant in the crypto market. You can not prohibit the emergence of new coins. Blockchain is good because anyone can join the market and contribute. I believe that more than 8 billion coins can coexist in the market. These can be individual tokens or coins issued by some community.

“Yes, it's a huge amount of information. But after all, we figured out the smartphone! Now it’s hard for us to perceive such an amount of information about tokens, but it’s all a matter of time. Blockchain is a huge infrastructure. This is an open platform for the realization of their abilities. Everyone can implement their ideas based on the blockchain. Each coin has a specific set of features. Money has several functions. In addition to being the subject of consumption, they are also the subject of a measure of exchange and evaluation. Similarly, in digital coins, each is unique ‌and may be of interest to the consumer.”

Denis Smirnov, Liquidity Manager for EMCD, the largest mining pool in Eastern Europe, blockchain specialist, cryptocurrency researcher, takes the position that diversity is the key to development. According to the expert, the distributed registry technology makes it possible to implement a wide variety of products that are united by one common detail. All of them have internal account units—the very altcoins, which, besides being able to act both as a means of payment and as an investment asset, also have a purely utilitarian function. They serve to pay for any service within the product.

For example, Ethereum, the second cryptocurrency in terms of capitalization, is primarily the “fuel” for smart contracts, i.e. special applications that allow you to implement a variety of logic in a decentralized environment. The greater the demand for decentralized applications, the greater the demand for ETH tokens. Other altcoins may have a completely different functionality—the payment for data storage disk space, for some services, and even game assets. Therefore, the more new projects using distributed ledger technology appear on the market, the more altcoins emerge.

Vladimir Gorgadze, Head of the Master's program "Blockchain" at MIPT, shares his opinion with the readers of our magazine, saying,

“All coins and tokens other than Bitcoin are altcoins. And all this variety of ideas and incarnations greatly influences the development of the industry. Do crypto enthusiasts need such a variety? A lot depends on their goals. If a person/company came to the industry just to trade, catch the hype and/or make money on their trading strategies, such a variety is superfluous. If a crypto investor invests precisely in the idea or its execution, then diverse experience will be very useful for them.

“As for ‘several coins with different functions’, here I would highlight a fundamental misunderstanding of the concept of tokens. A token is a program (smart contract) that can contain business logic of almost any complexity and implement almost any business process. Naturally, there are limitations associated with external and human factors. But the functionality of tokens is so diverse that you cannot ‘limit yourself to a few coins’, otherwise the benefits of blockchain technologies are wasted. This is a very deep topic that deserves separate consideration. The short answer is yes, variety is needed to cover the needs of any business.”

Gleb Jount, official representative of the Bitget exchange in the CIS, notes that some ecosystem alts, such as ETH, SOL or AVAX, can be used to create NFTs, buy virtual land, create new tokens and governance. The practical significance of such an altcoin as, for example, Monero, lies in the complete anonymity of the transaction. Very often, the reason for crypto enthusiasts to own just a few coins with different functions is to speculate on the rise in price.

The expert adds that you need to remember that indeed there are projects and digital assets that can grow because of their interesting applications or the efforts of the creators, and there are projects that contribute to a glut. Experimentation is normal for strong and revolutionary changes in modern finance.

Dmitry Chernov, CEO at Armacoin Ltd, has a rather skeptical opinion on this matter.

He says,

“I see very few coins with some kind of functionality. Usually I come across simple tokens with just payment data, and some are even miserable copies of each other. They simply lack the functions of mint or burn, not to mention complex updatable smart contracts.”

Vladislav Akeliev, Director for Development of the ECOS cryptocurrency investment platform, is sure that it will not be possible to limit oneself to a few coins, because it is difficult to integrate several functions into one cryptocurrency. And most often this is unnecessary since functions conflict with each other. Most often, altcoins are not created like that. Usually this happens at the request of the crypto community due to the problems of existing coins.

Yaroslav Safonov, Director for the Development of Distribution Channels of EMCD, the largest mining pool in Eastern Europe, notes that dozens of new altcoins appear every day, and this is similar to the “dot-com bubble”. The sifting process has already begun. Useless and fraudulent tokens go to the periphery, where they are quickly forgotten. This is a normal market cycle, where after a lot of hype, a huge number of new projects appear. According to the expert, in the future, the growth in the number of altcoins will slow down, but this does not mean that we will have 4–5 or top 10 coins and will use only them. The number will soon go to hundreds, as there are interesting and promising projects.

Investment value of altcoins

Despite the practical usefulness of altcoins, one should not forget that the chief charm of digital assets lies in their investment attractiveness. Every investor dreams of investing in the very coin that will only show growth and bring high income.

It is impossible, however, not to mention that most altcoins have a direct correlation with Bitcoin. If the main coin creeps down, then the whole market falls. To understand why people continue to invest in altcoins, we asked the experts about their investment value.

Derek Lim answers the question as follows,

“Crypto communities that support a particular token see it as a feature or utility that they don’t find in BTC. Macro-level risks are very simlar in this market, and investors should beware of coins that have no other unique appeal other than high returns. Of course, there are still ways to make a profit in a market downturn, and the imperceptible difference between tokens for the average investor can be used to generate significant profits for institutional traders.”

Danatar Atajanov notes that the correlation with the Bitcoin exchange rate is explained by many objective and subjective factors, including the market share, age and status of the first cryptocurrency. Reliability, time-tested—Bitcoin cannot be deprived of that. The investment value of altcoins lies in the growth opportunities. If we take the analogy with fiat, Bitcoin can be called digital gold, and new altcoins can be called shares of ambitious startups with big prospects. Of course, not all of them will succeed, and the competition in the market is getting tougher every day.

Alexey Stepanov, website developer, entrepreneur, expert on NFT collections, shares his opinion with the readers of our magazine, saying,

“Top altcoins have functionality, so they have their own value. For an investor who looks at everything that happens as a speculation market, this is an opportunity to earn money. When bitcoin falls, alts fall twice as hard. But in general, the opposite is also true, when the market and bitcoin rises, alts grow much stronger, albeit not immediately.”

Denis Smirnov believes that it is not entirely correct to consider altcoins only as investment assets. The main value of the vast majority of digital currencies is its utilitarian aspect. The correlation of the altcoin market with Bitcoin is a “growing pains” caused by the relatively small size of the market of cryptocurrencies and the fact that the vast majority of them on the trading floors are traded mainly with Bitcoin and their value is expressed in it. The first cryptocurrency falls, and the capitalization of the entire market decreases along with it. But over time, as more assets are traded not only with Bitcoin but also with stablecoins, this correlation will decrease. As well as will decrease the volatility of the entire market as capitalization continues to grow.

Aziz Kenzhaev emphasizes that the entire cryptocurrency market has a direct correlation with Bitcoin, but is it always “direct”? The expert says,

“No. Different factors influence the price of Bitcoin and all cryptocurrencies. Now there are more and more fundamental investors, and the cryptocurrency market is becoming clearer for them. In order for everyone to determine the value of cryptocurrencies for themselves, first it is necessary to determine your investor qualifications. Are you a short-term, or a medium-term, or a long-term investor? Each type of investor sees value in altcoins differently, but, speaking generally, if Bitcoin grows by 2%, altcoins will grow by 4% on average. There is a correlation, but remember that when you invest in an altcoin, you invest in a project and its product. There are many examples of altcoins not following the daily price movement of Bitcoin.”

Egor Abramov reminds that the capitalization of bitcoin is 40% of the capitalization of the entire crypto economy. Therefore, if the price of BTC decreases, this entails a decrease in all other coins. The reasons for the decline are usually the same for everyone. The same is true for any economy. If all the "blue chips" go down, then investors generally lose interest in the economy and other companies also become cheaper. But this does not mean that other companies are not needed.

According to the expert, it is necessary to distinguish between tokens with some real business and tokens with nothing. But this is true for any ordinary market economy. If the enterprise does nothing, then it will not cost anything.

Yaroslav Safonov believes that the correlation statement is partially false and says,

“When Bitcoin falls, almost all the altcoin market repeats its dynamics, but there are coins that go against the market. The situation is similar to that in the stock market. When the S&P500 or other important indices decrease, there are securities that are actively strengthening against the backdrop of fundamental factors. Also historically, the correlation between Bitcoin and altcoins has been declining. The investment value of alternative coins lies in high profitability, which is accompanied by high risks.”

Vladislav Akeliev comments on this as follows,

“Bitcoin is part of a class of assets called cryptocurrencies. The dollar is a part of assets called fiat currencies. Very often, there are events that affect the whole type of assets, because they are similar in their characteristics. For example, if the value of the dollar falls sharply, then the value of other currencies is likely to fall. Does this mean that no other currencies are needed except for the dollar? Of course not. The same is with Bitcoin.”

Vladimir Gorgadze agrees that the vast majority of coins are highly correlated in value with Bitcoin. One of the main reasons for this can be called the lack of interesting ideas in the projects themselves, so the investment value of such coins is often low. They are also often subject to manipulation, the so-called “pump and dump”, by unscrupulous players, that is, the risks are also very high. On the other hand, the expert notes that there is a significant number of “interesting” altcoins for investment, only a careful selection of objects for investment is required.

Alexander Ryabinin expresses his opinion on this matter, saying,

“I do not think that the system in which the entire market is oriented towards Bitcoin will continue for a long time. Now, it is a speculative tool. And enthusiasts, noticing the growth, open positions to buy, and noticing the fall, they close and vice versa. But, when the realization comes for everyone that each coin is a separate company, they will walk in different directions. Time is needed. And now the value of altcoins is that they give increased returns compared to Bitcoin.”

Victoria Ustimenko notes that at the moment there are altcoins that do not directly depend on the Bitcoin rate. Among them are Solana, Litecoin, Cardano, Eth, Ripple, and others. Their advantages are high scalability and lower fees.

Dmitry Chernov shares his thoughts on this matter, saying,

“The greatest value of altcoins was, first of all, their ability to pump. Bitcoin or ethereum are much more difficult to pump. Otherwise, altcoins, as a rule, are much more prone to volatility and someone earns more and faster on it, while someone loses... Take Elon Musk, who pumped Dogi first, and then Shiba.”

Gleb Jount believes that, despite the huge number of altcoins, Bitcoin is undoubtedly the main and base currency of the cryptocurrency market and the Internet / digital economy. This is evidenced by the trading liquidity of the currency and its capitalization in relation to the market as a whole. With its price, it reflects the overall morale of market participants and its current success.

The expert also notes that not all altcoins always fall along with bitcoin. There are those who have demonstrated an inverse price correlation, both local and long-term, supported by positive news and new demand due to real utility.

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