Investing in altcoins: Prospects and risks

Prospects and risks of investing in altcoins

Traders and investors are expecting another altcoin bull market after the bitcoin bull market. Will there be one in 2024? What are the specifics of investing in altcoins and how to avoid risks? Let’s take a closer look at this asset class in this article.

What are Altcoins?

Simply put, anything that is not bitcoin is an altcoin. This definition comes from the abbreviation of the English words “alternative” and “coin”, which literally translates to “alternative coin”. This term emerged in the crypto industry on the fact of the emergence of the next generation of assets after bitcoin, which were positioned as an alternative to the first cryptocurrency. The first alternative cryptocurrencies were Namecoin and Litecoin, and today their number is already in the thousands (there are about 15,000 cryptocurrencies on the market, according to CoinGecko and Coinmarketcap).

Since its inception, bitcoin has occupied 100% of the entire crypto market, as it was the only cryptocurrency at the time. Historically, as the industry developed, the bitcoin dominance index, which reflects the coin’s share of the total market capitalization, naturally changed downward. And if it was 96% in 2014, it is currently fluctuating between 51-53%. The decrease in the share of “digital gold” in the total capitalization of the crypto market was caused by various reasons, but the main factor in reducing the dominance of bitcoin was precisely the growth of the total number of cryptocurrencies. That is, altcoins.

Altcoins owe their birth to the shortcomings of the first cryptocurrency — developers wanted to create more advanced versions of decentralized networks without the limitations and shortcomings of bitcoin. Early altcoins used the BTC blockchain architecture for this purpose, and over time began to develop separate, advanced models of networks with one technological innovation or another.

What to consider when building an altcoin investment portfolio

Traders try to follow these basic rules when creating and diversifying a portfolio:

For medium and long-term investments, it is worth considering cryptocurrencies that are in the top ten in terms of market capitalization;

For short-term investments — the next 20 coins;

Other tokens should be used for intraday trading or initially considered as high-risk trading and investment instruments that require increased attention.

It is also important to consider the seasonality of altcoins. For example, this summer, the market is still in hibernation mode and the technical parameters look unattractive for active trading. And now experts are waiting for it to enter a dynamic phase from the beginning of this fall or later.

Will there be an altcoin season in 2024?

Crypto traders call the season of altcoins the period of their active simultaneous growth. It is generally believed that a bear market goes through four stages of asset growth: first BTC, then ETH, then other cryptocurrencies with large capitalization, and then the rest of the set of projects, including assets with low liquidity. And the period of three months, when more than 75% of alternative cryptocurrencies from the top 50 by capitalization (excluding stablecoins) show a percentage of returns higher than bitcoin, is called altcoin season. Traditionally, it comes one year after the halving of “digital gold”. The consequences of the fourth halving are still difficult to predict, as it occurred in a specific market situation that differs significantly from previous market cycles.

What Changes the Altcoin Market Expects in the Near Future

Experts highlight three major events that will have the biggest impact on altcoin forecasts in the coming months:

The outcome of the recently launched spot Ethereum ETFs. 21Shares, Bitwise Asset Management, BlackRock, Invesco, Franklin Templeton, Fidelity Investments and VanEck received SEC approval. According to the most conservative estimates, the spot ETH ETF will raise $3-4 billion over the next 12 months, and the price of Ethereum will increase by at least 25%. Most likely, after the spot Ethereum ETF, similar products with other altcoins (SOL and XRP are the first in line), as well as more structurally complex mechanisms will appear. Presumably, these could be staking tools or the ability to create a basket of multiple underlyings to link altcoins and NFTs, or to combine altcoins with DeFi solutions. All of these products will enable a significant influx of institutional funds into the sector and have a major impact on its growth prospects.
The global economy has been waiting for the Federal Reserve to lower its key interest rate for almost two years. Experts believe that the long-awaited event is likely to take place in September. This is one of the most important economic factors that will lead to an improvement in the global financial climate and contribute to higher returns and liquidity of altcoins.
The American presidential election, which will be held this November, is one of the most unpredictable in the history of the United States. And while the Republican Party says that cryptocurrencies will be given a green light and the regulatory pressure on the sphere of digital assets will be significantly reduced, the Democrats have not yet given any clear signals about the possible easing of regulation.

Key risks of altcoins

High volatility of altcoins. Altcoins are more volatile than bitcoin and fiat currencies.

Regulatory risks. The uncertain regulatory situation in the U.S. and the beginning of the implementation of the new MiCA regulations in the European uniоn destabilize the activity of investors and issuing companies. The lack of uniform global regulation of cryptocurrencies in different jurisdictions makes it difficult for institutional investors to enter the market.

Security risks. Despite an overall decrease in cybercrime over the past year, altcoins are still vulnerable to security issues. Development teams continue to actively work to identify vulnerabilities and prevent technical failures and cyber threats.

High competition. The risks and rewards of cryptocurrencies are directly related to the skills of project teams and the speed of innovation in a competitive market. With the growing number of altcoins, the fight for a place under the sun requires high professionalism and quick response in product creation, crypto investing and trading.

The evolution of DeFi and NFT in the Bitcoin network. The ecosystem of the first cryptocurrency expands rapidly. The launch of spot ETFs, the introduction of BRC-20, the launch of Ordinals, the growth of the Bitcoin NFT market and the expansion of opportunities in DeFi allow the network to strive for dominance in these niches as well. And it was Ethereum’s prerogative to do so initially, and it was the availability of DeFi and NFT tools that propelled Ethereum to second place in terms of capitalization. Today, bitcoin is building strength to compete with Ethereum, Solana and Polygon.

Promising Altcoins

Let’s take a look at the coins with high growth potential in the coming months. These altcoins are considered by experts as promising for crypto investment and portfolio diversification in today’s realities.

Ethereum (ETH)

ETH is considered to be the most promising altcoin. It is the second most capitalized cryptocurrency (also known as digital silver) with a strong history and solid position. ETH has risen more than 70% in one year, from $1872 to $3244 at the time of writing. And when the coin is saturated with institutional money via spot Ethereum-ETH, its value could reach the $5500-5700 level, according to analysts’ predictions. This means that the coin’s projected growth at the end of the third quarter could be another plus 65-70%.

Ripple (XRP)

Once Ripple Labs’ legal battle with the SEC over the amount of the fine is resolved, the value of XRP will skyrocket by 50-70%. One of the oldest and largest cryptocurrencies is now the 6th most capitalized of all coins, and once the legal battle is over, it will show its full potential.

Chainlink

Experts expect the coin to grow by 20-30% in the third quarter. The altcoin is ranked 15th in the world, and the team continues to work on integrating with DeFi and improving Oracle services as part of the launch of Chainlink 2.0. The token has grown more than 110% in one year, from $6.2 to $13.35. The coin is in high demand and shows great promise for Real World Asset (RWA) tokenization. The RWA tokenization segment is currently at the beginning of its development and has a potential capacity of about $30 trillion, according to the calculations of leading crypto specialists.

Solana (SOL)

Solana continues to build value by attracting developers with high performance and low transaction costs. The ecosystem is growing rapidly with a strong influx of new NFT and DeFi projects, Memcoin startups and a vibrant community. SOL is the fifth most capitalized token, with the token price up more than 500% year-over-year to $177 today. Analysts are predicting a potential 30-40% increase in the coin’s price in the third quarter.

ZKSync

According to experts, the altcoin expects an undeniable explosive growth (at least 50%). The success of the project with Ukrainian roots is due to the high importance of Zero-Knowledge-Proof (ZKP) technology for scaling the Ethereum blockchain. The coin is currently ranked 107th in terms of capitalization and is worth $0.16.

FET

Fetch.ai project token, recently positioned as a token of the Artificial Superintelligence Alliance (a new merger of Fetch.ai, SingularityNet and Ocean Protocol). It ranks 29th on the top, showing a 470% growth year-over-year. The price of the altcoin today is $1.23. The goal of Fetch.ai and its partner projects is to increase the adoption of artificial intelligence, which is currently one of the most promising trends in the blockchain technology market. And the unification of the joint efforts of major players focused on AI development creates all the conditions for the growth of this altcoin.

Worldcoin (WLD)

Is also a cutting-edge project among artificial intelligence tokens. The company behind its development is Tools for Humanity, co-founded by the not-so-famous Sam Altman of OpenAI. After the launch of the Sora neural network this winter, which generates detailed, realistic videos, the token’s value increased by 150%. WLD is now in the top 100 most capitalized tokens and is already worth $1.23. Moneta is also predicted to grow significantly.

TRON (TRX)

The platform offers great opportunities and is actively gaining momentum, providing high quality and useful tools for developers of decentralized projects: creation of dApps, content, analytics, financial transactions, etc. Due to the high demand for the network, TRX ranks 11th in terms of capitalization and shows a growth of 75% over the last year.

Conclusion

There is no perfect time to invest in altcoins. High volatility, market fractalization, a huge number of new projects and uncertainty about upcoming macroeconomic events make the accuracy of predictions for the start of the altcoin season unreliable. Study the information, use only verified sources and make up your own mind.

Thank you for your attention and good luck. Invest safely and profitably!

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