What is an Altcoin?
If you happened to read our cryptocurrency dictionary blog from a couple of weeks back, or are already a crypto enthusiast, then you’re probably familiar with altcoins. If not — this will be a good introduction. While a lot of the terminology surrounding cryptocurrency and blockchain can be complicated and confusing, this blog should be very straightforward for new investors.
Let’s start with the basics — what is an altcoin? An altcoin is any cryptocurrency other than Bitcoin (BTC), which is widely considered to be the original cryptocurrency. Broken down, altcoin means alternative coin. This indicates that any cryptocurrency on the market that’s not BTC is referred to as an altcoin. This includes popular coins like Ethereum, Litecoin and Ripple. It may seem unorthodox to refer to every other available digital coin as a mere alternative to Bitcoin, but Bitcoin has earned this title through continued success and early domination of the market. While there were various attempts at digital currency before Bitcoin, such as DigiCash and B-Money, Bitcoin was the first decentralized digital currency to attract the critical mass of users required to succeed. As a result, most of the altcoins available perform in accordance with Bitcoin, with some coins’ success entirely dictated by Bitcoin’s movement. It may seem like these coins are lesser versions of Bitcoin, and thus don’t have much value to crypto investors. However, there are a couple paramount reasons to consider altcoins.
Why Do We Need Altcoins?
Any savvy investor knows that diversification is a key to success. That old saying about not wanting all of your eggs in one basket is, in fact, a great piece of investment advice. Diversifying your investments across a portfolio that includes assets like stocks, bonds, cash, and cryptocurrency is important for mitigating risk and taking advantage of multiple opportunities for success. Being diversified in one’s investments reduces the impact of any one asset failing and allows investors to have some control over risk. What does this mean for crypto investors? First, it means that you shouldn’t be invested in crypto and anything else. At Levcrypto, while we handle cryptocurrency investments, we still understand the importance of a diverse investment portfolio. As a cryptocurrency investor, you may want to reduce your risk profile with investments in government bonds or other low-risk options. Overall, your ideal portfolio would include investments of every kind with assets allocated at a risk level with which you’re comfortable. It’s not a good idea to have all of your assets in cash, but it’s also not a good idea to have all of your assets in crypto.
Another important aspect of a diversified portfolio is diversification within your investments. As discussed above, it’s important for investors to own a multifarious investment portfolio, including stocks, bonds, cash, crypto, and other assets. Likewise, it’s important to have diverse investments within a diverse portfolio. For example, when one invests in stocks, they typically don’t buy a bunch of shares of one available option and call it a day. Instead, the savvy investor builds a portfolio of various stocks that help to mitigate the risk of anyone failing. This concept holds true in cryptocurrency as well. And while we don’t see Bitcoin failing anytime in the near future, it is still prudent to diversify your crypto. In cryptocurrency investing, the industry volatility can be one of the most exciting aspects as it leads to big wins and unpredictable results. Unfortunately, this is a double-edged sword. Crypto’s unpredictability can also lead to quick downturns and large losses, especially for those who invested without a strategy. For the diversified crypto investor, however, these losses don’t hurt as much. If an altcoin takes a dive tomorrow, it’s far less significant if it’s one of the five you own, rather than the only one. Essentially, this is where altcoins come into play for many investors — they’re a way to hedge your bets. Owning multiple coins will ensure that your portfolio doesn’t tank if one currency drops.
So now you know why it’s important to have more than just Bitcoin in your crypto portfolio. But you probably don’t know how to build a portfolio that’s right for you, tailored to your desired level of risk. Choosing the right coins, allocating the proper funds to each coin, and knowing when to enter each market are difficult tasks even for experts. That’s why, at Levcrypto, we don’t make you do the legwork when it comes to building your portfolio. All you need to know is what you want to invest and the level of risk with which you’re comfortable. Once we know that, the rest of the hard work is on us. We will set up and tailor a diversified cryptocurrency portfolio to your needs. While it may seem daunting to enter such a volatile and complicated industry, Levcrypto helps take the pressure off you. We take care of diversifying your portfolio and you just watch your assets grow.