Written by: Tim Pace 5/14/2019
Hello again my friends. I have been seeing a lot of back and forth on social media centered around one subject… Which is a better investment, Bitcoin or an altcoin? I decided to take a look at the potential benefits and downfalls of investing in cryptocurrency. There is a lot of confusion and ignorance surrounding cryptocurrency investments. Some like to refer to it as “dumb money” but I will refrain from doing that. I believe many cryptocurrency investors are inexperienced (myself included) and they need to understand the risks that accompany their investment. I will cover the potential risks and rewards from investing in Bitcoin or an altcoin.
Bitcoin: King or Steward?
We have all heard it before, “Bitcoin is the king!!” Yes, it is number one on Coinmarketcap. Yes it currently holds approximately 60% of the entire market cap of the entire crypto industry. Why is this significant? Well Bitcoin has what many altcoins lack, liquidity. What is liquidity? Liquidity means you will be able to sell your Bitcoin when the time comes. Liquidity is crucial when you are deciding which coin you want to invest in or trade. If the market for the coin you like lacks liquidity than you may not be able to sell your coins when the time comes. Imagine seeing the price of your coin pump 40% and you get on the exchange to sell it, only to realize nobody wants to buy them. With Bitcoin you don’t experience problems like this. It is one of the reasons Bitcoin is a superior investment.
Bitcoin started over 10 years ago. (To read more about the history of Bitcoin see this link to an article I wrote a while back: https://cryptominertips.com/what-is-bitcoin-a-beginners-guide-to-the-future/) If you want to make a long term investment than you need to consider the history of the coin you are looking to invest in. For instance, Bitcoin has been here for over 10 years. You can look at the history and watch how it has performed over most of its life. 10+ years may not seem very long to traditional investors that invest in companies like GE or Coca-cola which have been around for a century. But in terms of cryptocurrency, Bitcoin has been around for an eternity when compared to most altcoins. This gives it a distinct advantage. Experienced investors and traders like to be able to see past performance before they invest. Cryptocurrency is no different than traditional investments when it comes to this rule. Investing in a traditional start up is risky. It is similar with many altcoins.
Is Bitcoin the “king”? I would have to say yes. Bitcoin started this show. If you look at most altcoins white papers, they typically refer to Bitcoin in some way shape or form. Will Bitcoin ever be dethroned? It could happen. Anything can happen. But I don’t think that this is very likely in the foreseeable future. Over the life of Bitcoin, it has risen from less than 1 penny to nearly $20,000 per coin. You would be hard-pressed to find any investment that has ever performed this well. Experienced investors and traders understand this, and so should you. People tend to think that Bitcoin has plateaued and investing in altcoins is the new magic carpet ride to a lambo. But if you ask me Bitcoin is just getting started. Let’s look at the pros and cons involved in altcoin investments.
Altcoins: “Budget coins” or future king?
We have all heard someone claiming that “XXXX- coin is the new Bitcoin!!!” Its easy for inexperienced investors to be swayed by a little razzle dazzle. Meaning that these altcoins, in many cases, are all hype. Don’t get me wrong, I do think there will be many that survive. But most altcoins will not make it 10 years. You need to consider this when you are deciding what investments you are going to make. I talked about liquidity earlier, but I need to touch on it again. The first thing you should do before you decide you want to buy an altcoin is check the liquidity. If nobody is buying it (daily volume is low) you will likely experience difficulties when you look to sell the coins.
I bought a coin on Cryptopia about a year or so ago. I wont name it, but it was ranked around 700 on Coinmarketcap. I woke up one morning and to my surprise the coin had pumped 20% while I was asleep! Well I was excited and decided that I would sell the bag and enjoy my profit. Easier said than done. I attempted to sell the coins and it took days for a buyer to surface. By that point the pump was over, and the coin was close to the same value I purchased it for. That was extremely frustrating. I learned a great lesson from this experience. Stop buying coins that nobody else wants. How do you know what coins people desire and the ones they could care less about? Well look at the daily volume and the market cap etc.. This information can be very helpful. After I had this experience on Cryptopia I decided I would research my buys a bit more and stop taking advice from random strangers on the internet on which coins to invest in. They don’t want to help you; they want to help themselves.
Since that point I still trade altcoins for a quick gain. But long term I wont hold altcoins. I mean I have faith Ethereum will be around for a while and so should some other altcoins. But the pumps with altcoins are what make them attractive to new investors. It happens all the time. Someone sees a coin pumping and they decide to jump in right before it dumps. Im not saying that this doesn’t happen with Bitcoin, I’m saying it is more common with altcoins due to the high rate of failure and low liquidity they offer. I trade alts all the time. I tend to stick with coins that are in the top 20. That is just my rule. If you want to invest in any altcoin you need to understand the risk involved. The top 20 coins all have plenty of liquidity for the time being.
It all boils down to risk. The risk involved when choosing an altcoin is significantly higher than an investment in Bitcoin is. Many probably disagree with my opinions. When you are making a long-term investment, you need to consider the risk involved. Will this random altcoin even be here in 2 years? 5 years? I can tell you that many altcoins will not. You should understand this before you make a serious commitment. I trade altcoins. The reason I do it is to accumulate more Bitcoin. I know many excellent traders that do the same.
For the foreseeable future the battle between altcoins and Bitcoin will remain a hot topic. People will claim, “this coin is the future Bitcoin”. But these claims are usually baseless. Bitcoin is proven and that is why the market cap is nearly 7 times higher than its nearest competitor. Will altcoins be successful? Sure, some will likely be around for a good while. Maybe even decades. But which ones will they be? This is the question. I have faith in Bitcoin being around for a good while. This is why I trade. Accumulating sats is my goal. I couldn’t care less about accumulating altcoins. I just don’t have faith in many of them and I am not gifted with foresight so I cannot tell you which altcoins are going to be “the next Bitcoin” (at least in terms of potential gains) People tend to think just because a coin is .07 cents at the moment that the coin has more potential than Bitcoin. This is a fallacy. These folks tend to ignore the amount of coins available etc. Bitcoin currently has around 18 million coins that have been mined. Some altcoins have a supply of billions or coins. You need to consider this as well. Just because a coin is cheap right now doesn’t mean its going to blow up to 20k like Bitcoin did. The supply won’t allow that. For instance, if you look at Cardano, the supply is around 26 billion coins @ .08 cents each. Which equates to a market cap of $1,993,111,105. Pretty nice huh? Well let’s look at what the market cap would be if Cardano was just $10 per coin. $260,000,000,000. The market cap for the entire cryptocurrency industry isn’t this high at the moment. A cheap coin may look attractive, but there is no guarantee that they will see the same success as Bitcoin has. A little common sense can save you from a losing investment. I wish you all luck and make sure you understand that there is risk in all investments. Your job is to figure out how to mitigate these risks as much as possible to give you the best chance to walk away with profit. 😊