“Altcoins,” or Alternative coins, refers to any cryptocurrency aside from Bitcoin, such as Ethereum, Polkadot, and even Bitcoin Cash. There are about 14,000 altcoins (as of November 2021), but their number is increasing. Many altcoins, especially those in the beginning, are based on Bitcoin and have similar functions. However, many of them have different consensus mechanisms, like Proof of Work and Proof of Stake, along with their variations. In this article, we will discuss altcoin types, how to trade alt coins and stake them, as well as how you can also benefit from the failure of the market.
- Any cryptocurrency aside from Bitcoin is considered an Altcoin (alternative coin).
- Some major types of altcoins are mining-based altcoins, stablecoins, meme coins, security, and utility tokens.
- Altcoins can be traded using short-term (at most a few months) and long-term (at least a year) strategies.
- These can also be staked to yield passive income and secure the network of your choice.
- Using the shorting method makes it possible to make a profit even if the market is failing.
Types of Altcoins
There are actually quite a lot of altcoins, and, in fact, all the cryptos but Bitcoin, are called altcoins. But now let’s explore the different types of altcoins:
Like its name, this type of altcoin is mined and mainly uses the Proof of Work mechanism. Many of the best altcoins in early 2020 were of this type. Some examples include Litecoin and Monero. An alternative to altcoins of this type is “premined” coins, which are often also part of an Initial Coin Offering (ICO).
Fixing the value of stablecoins to a basket of goods, like fiat currencies or other cryptocurrencies, allows this type of altcoins to solve the problem of volatility connected to the trading and usage of cryptocurrency. The basket acts like a reserve that can be redeemed if the cryptocurrency fails. As such, in the case of stablecoins, price fluctuations typically do not exceed a narrow range.
Although these are somewhat similar to securities that are traded in stock markets, security tokens also have digital provenance. This type of altcoins frequently offers holders equity (in the form of ownership) or a dividend payout. A big incentive for investors is the prospect of price appreciation of security tokens.
The usage of this type of coins is usually in providing services (like purchasing, redeeming rewards, or paying network fees) inside a network. Unlike the previously mentioned security tokens, those do not part with an ownership stake or pay out dividends. An example of this type of token is Filecoin (used for purchasing storage space on a network).
These are coins that are inspired by a silly nickname for well-known cryptocurrency or a joke. They usually become popular in a short time, and prominent crypto influencers and retail investors often hype them up in the online space to exploit short-term gains.
Best Altcoins and Their Staking Strategy
Aside from being traded, you can use altcoins for staking as well. Staking helps secure and support the network of your choice while gaining rewards simultaneously.
Currently, some of the best long-term altcoins appear to be Ethereum, Polkadot, and Cosmos. When staking Ethereum, those who wish to become validators need to deposit 32 ETH (currently 0,05 ETH on the EGG staking platform). Alternatively, you can also put your stake into a staking pool, which is usually more affordable, especially for newcomers.
For Polkadot staking, you bond a certain amount of the DOT cryptocurrency to nominate a validator whose responsibility will be to secure the network and create blocks.
And lastly, for Cosmos staking, you lock your ATOM tokens for a certain amount of time and choose how much to delegate to a validator who will be responsible for creating blocks and securing the network in your stead (like staking other cryptocurrencies). Currently, ATOM staking is available on the EGG platform as well.
What Does Shorting Altcoins Mean and How It Works?
Typically, when we think of trading, it is usually through the method of buying at a lower and selling at a higher one. However, it is also possible to profit even if the market is falling. This is when “shorting” comes in. But how to short altcoins? First, you would need to borrow cryptocurrencies and sell them on an exchange platform at the current price. Next, you buy the cryptocurrency later and repay the amount you borrowed. If the price becomes lower when it is time for you to repay the borrowed amount, you can profit from the difference. To illustrate this better, let’s take a look at this example.
Crypto Shorting Example
Imagine that the current market price of a single X cryptocurrency is $7,000, and you want to short 10 of them. To make the trade, you borrow 10 coins from a broker at the current market price. The market moves as expected, and a single X coin price falls to $6,000. Now you sell these coins for $60,000 and return the funds to the broker. Since the price fell, you were able to gain a profit of $10,000 (previous market price (7,000) – current price (6,000).
To reiterate, when using this method, the trade entry should be as close as possible to the current price peak of the crypto coin. On the other hand, the trade exit should be below it in order to provide substantial profit. So timing is an important aspect of shorting.
Since the term “altcoins” basically refers to any cryptocurrency other than Bitcoin, it is no wonder that their number is continuing to grow. Altcoins may be based on similar blockchain, but their operating systems (PoS and PoW) may be different. Like Bitcoin, you can trade altcoins (short-term vs. long-term strategies) and stake them for passive income. In addition, even if you think the market will fail, you can still make some profit using the “shorting” method.
Trade entry and trade exit – In shorting, “entry” refers to selling the cryptocurrency, while “exit” is for buying. In all other cases, it means the opposite.
Premining – refers to the process of producing a stock of coins for the developers of the coin before a cryptocurrency’s ICO.
Volatility – a statistical measure of how large an asset’s prices may swing around the mean price.
Digital provenance – an unalterable record of a digital object’s chain of successive custody and the operation sequence performed on the subject.