What are altcoins?

Altcoins are a subset of the cryptocurrency market – and an extension of what Bitcoin has initially created. The term altcoin refers to all cryptocurrencies launched as successors or alternatives to Bitcoin, addressing its limitations and expanding beyond its original functions. While Bitcoin is one of the most recognizable tokens, there are thousands of other alternatives investors can invest in – and they are known as altcoins.

• Altcoins are cryptocurrencies other than Bitcoin, that have new functionalities such as smart contracts, decentralized finance, or simply no utility.
• There are over 17,000 different which are launched, with 5,300 new tokens being launched every day
• Altcoins with no utility – like memecoins was the highest performing altcoin category in 2024 with average returns of 342%

What are altcoins?

The term altcoin is short for “alternative coins” which are all the tokens minted on the blockchain apart from Bitcoin. In some cases, investors also consider Ethereum – which is a smart contract platform to not be attributed the altcoin label. The term emphasizes the diverse ecosystem of digital currencies that have emerged following several bull markets. According to industry data, most cryptocurrencies are considered altcoins, with only a few exceptions like Bitcoin and sometimes Ethereum.

According to data, there are over 17,000 altcoins in the market which are actually meaningful, and each is designed to have unique characteristics and serve a purpose within their ecosystem. The emergence of altcoins began with the launch of the first altcoins like Litecoin (LTC) or Ripple (XRP) and even memecoins like Dogecoin (DOGE), which played a significant role in the early development of the crypto ecosystem. While some are designed to have purpose and improve the blockchain ecosystem, others have little to no utility – like the case of Doge or other altcoins. Some altcoins also function as digital assets, serving as collateral, underlying components, or means of value transfer within their respective ecosystems.

How do altcoins differ from Bitcoin?

Bitcoin was originally designed as a peer-to-peer payment system, created to bypass centralized entities while prioritizing decentralized transactions and user security. Similarly, altcoins were developed with goals akin to Bitcoin in their early stages, focusing on improving payment processes and reducing fees. However, second-generation altcoins expanded their purpose, introducing faster transaction speeds and additional functionalities like smart contracts. Ethereum led this evolution, pioneering a blockchain that functions as a virtual machine to execute code. 

Altcoins differentiate themselves from Bitcoin by offering extended utilities, unique ecosystems, and alternative methods for validating transactions, often targeting specific industry challenges.

Where to find altcoins?

Altcoins, similar to Bitcoin, are found on various crypto exchanges and major exchange platforms across the world. While some with high market caps are easier to find, others with limited utility can only be traded on decentralized exchanges through P2P transfers. The amount and variety of tokens on exchanges vary, and in some cases, users would require more than one account to access more alts. Stablecoins, on the other hand, are often preferred for purchases because their value remains stable compared to more volatile altcoins.

Pros and cons of altcoins

Although altcoins collectively surpass Bitcoin in market capitalization, each comes with its own unique advantages and drawbacks..

Advantages of altcoins

Expanded access to dApps: Altcoins provide a gateway to a broader crypto ecosystem. By holding these tokens, users can join communities and explore various aspects of the crypto world—without the need for active trading.

Potential for higher returns: Many investors see altcoins as an opportunity for greater returns, particularly during bull markets when their value can surge.

Enhanced utility: Altcoins with built-in functionalities, such as smart contracts, unlock access to features like NFTs, DeFi platforms, and other decentralized applications, adding significant value for users.

Lower entry barriers: Compared to Bitcoin, most altcoins are more affordable, making them accessible to a wider range of investors and perceived as a less risky option for retail participants.

Disadvantages of altcoins

Volatile: Alts typically experience greater price volatility than Bitcoin and carry more risks since most tokens are also paired with BTC. Taking on too much risk with altcoins can lead to significant losses, so investors should exercise caution. An investor’s risk appetite should guide their decisions when considering altcoin investments, as these assets can be much more volatile than Bitcoin.

Lower liquidity: Most altcoins have lower trading volumes than Bitcoin, which can make it difficult to buy or sell large quantities without affecting the price.

Project risk: Many tokens with ambitious promises often fail to deliver due to an inability to validate their technology. As a result, the token’s value and reputation may decline.

Market manipulation: Smaller altcoins are more susceptible to market manipulation due to their lower market capitalizations and trading volumes.

What are the main types of altcoins?

Altcoins can be categorized based on their primary functions and use cases:

Security tokens

Security tokens are a type of altcoin that represent legally regulated digital assets, such as shares in a company or ownership of real-world assets. These tokens are subject to oversight by authorities like the SEC and are often used in tokenized asset offerings to provide investors with regulated ownership or equity.

Payment tokens

Altcoins like Litecoin, Bitcoin Cash, and Dash serve as digital currencies for transactions and value transfer. Litecoin is known for faster transactions and lower fees, while Bitcoin Cash, a Bitcoin fork, is designed for higher transaction capacity.

Stablecoins

Stablecoins are cryptocurrencies designed to maintain price stability by pegging their value to external assets like fiat currencies or commodities. Examples include Tether (USDT), tied to the US dollar and popular in crypto trading, USD Coin (USDC), a regulated stablecoin backed by dollar reserves, and DAI, a decentralized stablecoin managed via smart contracts.

Utility tokens

These tokens can provide access to specific blockchain networks or services and have value in their own ecosystem. The most popular example is Ethereum with the ETH token which powers the entire networks, allows payments for services on the network and also rewards miners.

Governance tokens

Governance tokens give holders voting power in decentralized protocols. For example, Uniswap’s UNI token lets users vote on changes to the Uniswap exchange, while Compound’s COMP token allows holders to govern the Compound lending protocol.

Top altcoins

Market capitalization is a key metric for evaluating the impact and adoption of altcoins. Among them, Ethereum (ETH) stands out as the largest altcoin by market cap, renowned for introducing smart contracts that power decentralized finance (DeFi), NFTs, and Layer-2 protocols. Other notable tokens have also risen in popularity due to their utility and impressive market caps. Binance Coin (BNB) has gained traction through its integration with the Binance ecosystem, while Solana (SOL) is celebrated for its high-speed blockchain, capable of processing up to 65,000 transactions per second. Additionally, USD Coin (USDC), a stablecoin pegged 1:1 to the US dollar and fully backed by USD reserves, has become a trusted choice for stability in the crypto market.

Even with a 114% year-to-date return for Bitcoin, other cryptocurrencies have performed better. Altcoins like Pepe and Dogecoin, which are considered memes, have delivered higher returns during 2024. PEPE had a return of 520%, while DOGE had a yearly return of 310%, beating most of the top 10 cryptocurrencies by market capitalization.

How are altcoins used?

Tokens serve a variety of purposes in the evolving Web3 ecosystem. For a crypto investor, understanding the various use cases of altcoins is essential for making informed investment decisions. Today, users leverage altcoins to unlock financial opportunities and engage with decentralized applications. The adoption and use of altcoins in different applications can influence their market share within the broader cryptocurrency ecosystem. Here are some of the most common use cases for altcoins.

Decentralized Finance (DeFi)

Many altcoins power decentralized finance applications that provide traditional financial services without intermediaries. Users can lend, borrow, trade, and earn interest on their crypto assets through DeFi protocols.

Smart contracts

Altcoins enable programmable money through smart contracts—self-executing contracts with terms directly written into code. These contracts automatically execute when predetermined conditions are met, eliminating the need for intermediaries.

Gaming and NFTs

Many altcoins support blockchain gaming and non-fungible tokens (NFTs). Players can own in-game assets, trade them across platforms, and earn rewards through gameplay.

What Altcoins Can You Mine?

Only a handful of tokens on the market can still be mined, primarily older-generation tokens like Litecoin, Ethereum Classic, and Monero. In contrast, newer tokens such as Cardano, along with Ethereum following its transition from proof of work to proof of stake, utilize a different mechanism: staking. While the methods differ, their purpose is to verify transactions efficiently and securely.

Altcoin analysis and sector performance

Meme Coins: Surprising Market Leaders in 2024

Meme coins took the crypto world by storm in 2024, delivering an average return of 342% and dominating the charts as the best-performing cryptocurrency category. This explosive growth highlights the immense power of social media and community-driven narratives in shaping market trends. The meme coin market cap skyrocketed from $22 billion to an impressive $74 billion, marking a 236% surge.

Beyond speculation, meme coins have proven their staying power. Projects like Dogecoin have grown into widely recognized payment systems, while newer players like Pepe have leveraged viral marketing and strong community backing to capture market attention. That said, meme coins remain highly risky—volatility scores hit 9.6 out of 10, with frequent project failures or “rug pulls” still plaguing the space.

DeFi and Smart Contract Platforms: Utility Meets Growth 

Decentralized Finance (DeFi) tokens and smart contract platforms followed closely behind, achieving average returns of 62%. The DeFi sector saw a meaningful 48% rise in Total Value Locked (TVL), reaching $86 billion as adoption and utility continued to expand. While Ethereum’s dominance has declined slightly, it still underpins most DeFi activity, with $125 billion in circulating stablecoins built on its network.

DeFi protocols, particularly in lending and borrowing, have shown signs of maturity. Aave, for example, has cemented itself as a sustainable platform, while yield farming and liquidity mining continue to attract substantial capital. However, persistent challenges—such as regulatory uncertainty, smart contract vulnerabilities, and Ethereum’s high transaction fees—remain hurdles for long-term growth.

Layer 2 Solutions: Building the Next Phase of Scalability 

Layer 2 tokens, crucial for scaling blockchain ecosystems, showed steady but less impressive growth in 2024, with average returns of 40%. The market capitalization of Layer 2 solutions grew by 39% to $25 billion, reflecting increasing adoption. However, token value accrual lags behind network progress, signaling the need for improved tokenomics.

Base, Arbitrum, and Optimism emerged as leaders in the Layer 2 space, with Base generating $47.5 million in revenue year-to-date. Despite these gains, the sector faces ongoing challenges. Low token float and high fully diluted valuations have created selling pressure from token unlocks, while the disconnect between network growth and token performance underscores the need for better value capture mechanisms in token designs.

Are altcoins and memecoins the same?

Memecoins differ from traditional altcoins in that they are primarily driven by community enthusiasm and viral marketing rather than solving specific problems or offering technological innovations. Inspired by internet memes or created as jokes, memecoins like Dogecoin (DOGE) and Shiba Inu (SHIB) who gather around a crypto community have gained significant market capitalizations despite their humorous origins.

Unlike many altcoins that introduce new features or blockchain advancements, memecoins typically rely on existing technology without substantial innovations. They are also highly volatile, with their value often influenced by social media trends and celebrity endorsements, and while some have endured, they face challenges in maintaining long-term relevance without clear utility.

The rise of institutional adoption of altcoins

Rising regulatory oversight in the cryptocurrency market has sparked increasing interest in altcoins among institutional investors. While Bitcoin Spot ETFs have long been a cornerstone for institutional involvement in crypto, the approval of Ethereum’s ETF in 2024 has shifted attention toward altcoins like ETH.

Over the course of 2024, the Ethereum ETF attracted inflows totaling $2.34 billion, underscoring its growing appeal. As the second-largest cryptocurrency by market capitalization, Ethereum has gained significant trust from investors, further solidifying its position in the market.

Meanwhile, other altcoins, such as Solana, XRP, and Cardano, are actively seeking ETF approvals, aiming to capture institutional interest. With revised cryptocurrency policies and a more favorable stance toward crypto under the Trump administration, institutions are increasingly looking to diversify their balance sheets with altcoins.

Market analysis of altcoins

Analyzing the altcoin market requires a close look at price volatility, trends, and the factors influencing growth potential. Altcoins are known for their significant price fluctuations, often reacting sharply to news events, technological updates, and shifts in investor sentiment. One important metric is bitcoin dominance, which measures Bitcoin’s share of the total cryptocurrency market capitalization. When bitcoin dominance falls, many altcoins tend to see increased interest and price surges—a phenomenon often referred to as “altcoin season.”

Investors use a combination of technical analysis, such as chart patterns and historical data, and fundamental analysis, which examines an altcoin’s technology, use cases, and development team, to make informed decisions. Understanding these market dynamics is essential for anyone looking to navigate the crypto market, as the potential for both high returns and higher risks is ever-present in the altcoin space.

Making informed investment decisions

Altcoins are fundamentally distinct from Bitcoin, yet many investors struggle to fully grasp their differences and significance. In the world of trading, the performance of Bitcoin and altcoins is closely interconnected, with altcoins often taking a hit during periods of heightened volatility. Monitoring cryptocurrency prices is essential for understanding market trends and making informed investment decisions. Analyzing crypto prices and their relationship to Bitcoin dominance can help investors identify market cycles and spot trading opportunities.

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