Beyond Bitcoin – the risks and rewards of investing in altcoins

The smaller end of the crypto market has seen some big winners…and big losers.

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The Bitcoin (CRYTPO: BTC) price has slipped over the past 24 hours, down 2% to US$43,502 (AU$58,786).

The retrace comes after a strong run higher that kicked off last Thursday, when Bitcoin was trading for US$37,800.

A bit of back of the napkin maths then tells us the world's biggest crypto by market cap has gained 15% since Thursday's low. And the token is back up to a year-to-date gain of 49%.

While that's nothing to sneeze at, its 2021 gains pale in comparison to the world's number 2 crypto, Ethereum (CRPYTO: ETH).

The Ether price is down 6% over the past 24 hours to US$2,936. But Ether remains up 300% for the calendar year. Or more than 6 times the gains posted by Bitcoin.

Does Ether still classify as an altcoin?

You may have heard Ether referred to as an altcoin.

But with a market cap that now stands at roughly US$344 billion, is that still the right way to refer to it?

For that answer, the Motley Fool turned to Ray Brown, market analyst at Australian crypto and Bitcoin exchange CoinSpot.

Brown told us, "Defined as an 'alternative' to Bitcoin, Ethereum could still be considered an altcoin."

What differentiates the 2 biggest cryptos, Brown said, is that:

Where Bitcoin functions primarily as a currency, Ethereum has been designed as an "open source" network that provides a foundation for other applications and smart contracts. For this reason, Ethereum provides the ideal environment for the 1000s of other altcoins that have developed and scaled their own projects using the Ethereum blockchain.

So, with a 300% price gain, is Ether among the best performing altcoins of the year?

Hardly…

The best performing altcoin of 2021

"When it comes to best performing altcoins on CoinSpot," Brown told us on Friday, "the number one on the list is currently Telcoin (TEL)."

If you're not familiar with Telcoin, you're not alone.

Asked just what this altcoin does, Brown explained:

Telcoin is a new cryptocurrency offering unique services such as providing mobile phone users with the functionality to send money across borders in a more efficient manner than that offered by traditional banking services.

Telcoin has a market cap just north of US$908 million. And its 2021 price gains have been nothing short of phenomenal.

"Telcoin has gained widespread attention as it gained 10,063% year to date," Brown said.

And just how did it power so much higher so quickly?

"Driving its success," Brown said, "in July 2021, Telcoin closed a $10 million funding round, introduced a new Telcoin platform stack and two new user-owned decentralised finance (DeFi) products."

Another top performer on CoinSpot is Axie Infinity (CRYPTO: AXS). According to Brown, that token had gained 7,002% year-to-date, as at Friday.

If you thought Bitcoin was volatile…

When you start hearing about returns like 10,000% in less than a year, it can trigger the old greed factor.

But before giving into any fear of missing out on the potential outsized gains offered by altcoins, remember many can lose some or even all their value in short order.

And the smaller cryptos (outside of most stablecoins) often see far sharper price swings than Bitcoin.

"As many altcoins aren't as widely known as Bitcoin, they often lack exposure and acceptance, which can often contribute to some additional volatility," Brown told us.

However, he does see a potentially valuable role for altcoins in the crypto world:

One of the main advantages of altcoins is that by their nature they serve as an alternative investment option to Bitcoin. Many altcoins are working towards very different goals and attempting to build products for a huge variety of purposes.

The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of and has recommended Bitcoin and Ethereum. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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