Table of Contents
Here’s why new cryptocurrencies could eventually displace Bitcoin as the market leader.
Why altcoins are gaining on Bitcoin
Alternative cryptocurrencies (altcoins) to the dominant cryptocurrency, Bitcoin (BTC), are eroding Bitcoin’s market dominance as the value of cryptocurrencies has risen to record levels.
According to TradingView, Bitcoin’s market share of the $2 trillion global cryptocurrency market has dropped from around 70% at this time last year to 39% as of January 14. In other words, more than 60% of the cryptocurrency industry is currently made up of altcoins.
The Ethereum blockchain’s Ether (ETH), which came in second behind Bitcoin and currently holds 19 percent of the market, is gaining market share, but smaller altcoins pose a greater danger to Bitcoin’s long-term supremacy as more investors look for the next big coin that may soar.
More features than Bitcoin are promised by emerging cryptocurrencies including Cardano (ADA), Avalanche (AVAX), Ripple (XRP), and Polkadot (DOT).
Investors who want to benefit from this rise must comprehend the reasons why altcoins are outperforming Bitcoin. Here are seven justifications for why the underdogs are triumphant today.
1. The uses of cryptocurrency are growing
Numerous alternative cryptocurrencies have technology that can be applied to other fields in addition to cryptocurrency. Peer-to-peer financial platforms, automation, transaction security, and improved credit availability are just a few of the many applications that blockchain technology makes possible.
According to Clayton Gardner, co-founder and co-CEO of Titan, a cryptocurrency investing platform, these use cases, which have nothing to do with Bitcoin, “finally are being recognized and (are) achieving real adoption.”
Because the market is shifting toward “different crypto sectors that have different value drivers such as smart contract platforms, DeFi (decentralized finance) apps, NFTs (nonfungible tokens), play-to-earn games, distributed storage platforms, etc.,” according to Gardner, altcoins are overtaking Bitcoin.
These applications are essential for creating new methods for consumers and companies to communicate and conduct business online.
2. Institutional interest in alternative currencies is rising
Institutional investors are becoming more interested in digital assets. These larger investors can pour money into speculative assets since they often have more money to invest and may be willing to take on more risk than the average investor, which has led to a rise in interest from the general public.
Institutional capital is transitioning from asking whether to have exposure to cryptocurrencies to asking, “Where should I invest within cryptocurrencies?” says Gardner. Institutional investors are becoming increasingly aware of the advantages of blockchain as it gets more widely used.
This trend, which “possibly marks one of the major tech paradigm shifts over the future decade,” according to Gardner, is expected to be advantageous for altcoins.
3. The principles of crypto investment are evolving
Each cryptocurrency has a unique protocol, which may be viewed as the guidelines for how a network should function. Users purchase and sell Bitcoin via a cryptographic mechanism that uses digitally signed encrypted messages.
Each alternative currency has a unique protocol that determines how the blockchain is organized. The popularity and activity of a certain protocol determine the value of a given coin.
Strong use cases for a cryptocurrency may indicate that it has solid fundamentals and can withstand the fierce competition in the cryptocurrency industry. Crypto is currently transitioning from a macro/speculative asset class to one that is increasingly driven by fundamentals, according to Gardner.
The acceptance of cryptocurrencies may increase if they have solid infrastructure on their blockchain. Investors are paying more attention to things like real usage, the economic theories that underlie the tokens, and their particular growth drivers, he says.
4. Bitcoin is more expensive than altcoins
In the top $60,000 range, the price of bitcoin fluctuated as high as $43,000 as of January 14. Since many altcoins are far less expensive, private investors have easier access to them.
Investors are looking for fresh altcoin chances that are low in price because they provide the most upside potential as cryptocurrency’s popularity continues to rise.
According to Rodrigo Vicuna, chief financial officer at Prime Trust, a provider of financial infrastructure for fintech and digital asset innovators, “altcoins provide a comfortable entry point and an opportunity for asymmetric risk,” where the upside potential of a cheap investment is significantly greater than the downside risk of falling to zero.
Similar to fractional stock shares, altcoins can provide a more affordable pricing point for novice or average consumers without making them feel as though they are only getting a portion of the action, according to him.
For instance, Litecoin (LTC), which is substantially less expensive than Bitcoin, has ranged in price from $4 in January 2017 to $347 in May 2021 to its current price of roughly $136, still representing a sizable return on the initial investment made five years ago.
5. ‘Altcoin season’ could be on the horizon
A time period known as “Altcoin season” is when one or more altcoins begin to acquire traction and pose a threat to Bitcoin’s hegemony. This “flippening,” according to Ron Levy, co-founder and CEO of The Crypto Company, is unavoidable.
Although there are several cryptocurrencies with a wide range of uses, Bitcoin is one cryptocurrency with a solid use case. He claims that thousands of other coins are on the way, not only Ethereum.
Levy lists DeFi, gaming, and the metaverse as potential avenues for altcoins to continue increasing their market capitalization.
6. Altcoins are continually evolving
Bitcoin’s drawbacks can be used by altcoins to their advantage. For instance, Ethereum enables a variety of blockchain infrastructure functionalities, including automation and more extensive network interaction.
Compared to Bitcoin, the alternative coin XRP makes coin mining much easier. In contrast to Bitcoin and Ethereum, Solana (SOL) was developed to offer more scalable and secure software at a lesser price.
The demand for Bitcoin will certainly be impacted by the development of new altcoins that address the shortcomings of current cryptocurrencies and blockchains, according to experts.
7. Altcoins are a tool for risk management.
The chance of a larger return on investment in the short term is the most common justification for trading alternative cryptocurrencies. But according to experts, since certain inexpensive coins or projects do not require a huge investment, altcoin investors can utilize the tokens to reduce their risk.
Vicuna advises “looking toward assets that gain a foothold in areas such as the metaverse and GameFi or launch separate chains to automate and reward users who will support the chain with continued investments regardless of what happens to Bitcoin and the market” in order to maintain profits while reducing risk.
Levy asserts that investors with a longer time horizon might use altcoins to reduce risk to the fullest extent. If you want to invest quickly and exit the market, there is a place for that in the market, but Levy advises placing your valuable savings in the market for a while and then leaving it if you have the patience to wait.
Altcoins are outpacing Bitcoin for the following 7 reasons:
- The uses of cryptocurrency are growing.
- Institutional interest in alternative currencies is rising.
- The principles of crypto investment are evolving.
- Bitcoin is more expensive than altcoins.
- ‘Altcoin season’ could be on the horizon.
- Altcoins are continually evolving.
- Altcoins are a tool for risk management.