Altcoins have outperformed bitcoin in the past two months, with many of them seeing a 100,000% return and more. Meanwhile, BTC’s dominance falls to a 3-year low of 45%, suggesting that some investors are preferring altcoins over bitcoin and rotating from their bitcoin to altcoins markets.
Altcoins are alternative cryptocurrencies bitcoin. While they share many similarities with bitcoin, they are different in other ways such as functionality. They are also much cheaper and accessible to beginners. Over a thousand altcoins have been created and new coins are listed on exchanges every day, providing investors with a wide range of choices.
Take dogecoin as an example, the “joke” digital currency has a six-month return of 26,000% in 2021. However, sell-offs could happen anytime. On May 9, within one day, Dogecoin plummeted 40%. In addition, the price of the Shiba Inu coin (Shib/USDT) saw a 1,900% rise since May. But the threat of price dumps is looming on the heads of investors.
However, amid the altcoin season, mainstream cryptocurrency such as Bitcoin is still the most favorable choice for experienced investors. Although some altcoins can generate significant profits in a short time, the altcoin market is highly risky and investors should remain cautious.
One flaw of the altcoin market is market manipulation. Because most altcoins have a relatively small market cap, any dump or pump could result in wide price swings. Trades who hold large amounts of altcoins could play the markets to their advantage and retail investors could do little to protect themselves.
For instance, a whale may open a short contract, then dump a huge amount of altcoins to force the price down. After closing the short contracts, they can buy back the coins at a very low price. Since the order books of these markets are thin, they are much easier to control. Forced liquidation is a common occurrence in altcoin trading.
No Value, No Story To Sell
In addition, the technology of most altcoins is not mature compared with mainstream cryptocurrencies such as BTC and ETH, making them less irreplaceable and valuable.
If you are betting on the potential of an asset, small altcoins are not what you are looking for as they have little fundamental value. More often than not, the price rallies of these altcoins are initiated by big traders, then supported by retail investors driven by FOMO. But what goes up must come down someday, latecomers hoping to get a taste of rallies may very well find themselves buying high.
Mainstream Cryptos Remain The Best Buy
The main advantage of major cryptocurrencies is their widespread use and acceptance. Bitcoin wins the adoption of various big companies and has become an actual form of payment.
In terms of ETH, it is used to support smart contracts and Defi. Furthermore, the European Investment Bank will issue $121 million digital notes with Ethereum. With the implementation of the Berlin fork, Ether is expected to become more scarce, thus driving up the price of ETH. Although their prices are less fluctuated, they are steadily gaining in value, making them more suitable for beginners and pros.
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