Understanding Altcoin vs Stablecoin: A Simple Guide

Altcoins and stablecoins are two types of commonly used and traded cryptocurrencies. As a trader, you may have traded both or even added them to your portfolio. As a person curious about crypto, someone may have told you to buy an altcoin or trade a stablecoin.

In this article, we discuss what both coins mean, their key differences, and when to hold altcoins and stablecoins.

What is an altcoin?

The cryptocurrency industry is ruled by one coin - Bitcoin (BTC). At the time of writing this article, Bitcoin has a market cap of $581 Billion. For context, the overall crypto market cap is $1.24 Trillion.

That being said, altcoins are simply every other cryptocurrency you find on the market besides Bitcoin. There are currently over 5000 altcoins on the market, and these are the top 10 according to their market cap:

1. ETH - $223.62B

2. BNB - $37.61B

3. XRP -  $34.73B

4. DOGE - $10.64B

5. ADA - $10. 49B

6. SOL - $10.03B

7. TRON - $6.84B

8. MATIC - $6.44B

9. LTC - $6.17B

10. DOT - $6.17B

What is Stablecoin

A Stablecoin is a type of cryptocurrency that is tied to something like regular money or gold so that it doesn't go up and down in value as much as other cryptos like BTC, ETH, PEPE, DOGE, XRP, etc.

This helps keep it stable since it's pegged(tied) to the same value of a generally stable fiat currency like the U.S. Dollar or a commodity like gold. There are over 200 stablecoins on the market, and these are the top 10 according to their market cap:

1. USDT - $83.53B

2. USDC - $26.26B

3. DAI - $5.04B

4. BUSD - $3.39B

5. TUSD - $2.99B

6. USDD - $740.77 M

7. USDP - $511.04 M

8. GUSD - $355.47 M

9. USTC - $148.43 M

10. FRAX - $811.26 M

Read more about the different types of stablecoins:

Altcoin vs. Stablecoin: Key differences

Altcoins and stablecoins are two distinct types of cryptocurrencies, each serving different purposes within the broader cryptocurrency ecosystem.

Purpose

Altcoins are typically created to solve other cryptocurrencies' limitations, offer users new features beyond fiat currency, or uses such as providing privacy for crypto users, running smart contracts, and decentralized applications.

On the other hand, stablecoins are created to provide price stability, making them suitable for users and situations where the volatility of cryptocurrencies like ETH, BTC, XRP, SOL, and so on is a concern. Stablecoins are often used to trade other cryptocurrencies and send money locally and internationally.

Functionality

Although Bitcoin is the top cryptocurrency, it has limitations, and altcoins serve to solve those problems and even bring new features to the cryptocurrency ecosystem.

For instance, Ethereum introduced the concept of smart contracts, enabling the creation of decentralized applications (DApps). For more context, a smart contract is a computer program that helps complete and process cryptocurrency transactions.

Decentralised applications, popularly known as DApps, run and operate on a peer-to-peer (P2P) blockchain network rather than a centrally-owned computer server. It is free from central control by a single entity or corporation. DApps can be developed for gaming, social media, web browsing, and decentralized finance.

Ripple helps crypto traders and users make payments faster and at a lower cost. Solana is used to create NFT applications that allow users to create and trade digital artwork.

These use cases make the cryptocurrency and blockchain ecosystem more useful and user-friendly and increase acceptance across other traditional industries.

Stablecoins prioritize stability and usability. They provide a more reliable method of exchange and a stable store of value, reducing the price volatility associated with altcoins and Bitcoin.

This stability makes stablecoins more suitable for day-to-day transactions and financial applications. They also bridge the cryptocurrency ecosystem and the regular financial systems, enabling easier crypto integration into traditional financial services.

Price

Altcoins are known for their volatility. Their prices often go up and down due to the economy, features, regulations, and general market forces. While some altcoins, like ETH and SOL, experience significant price increases, others may face sharp declines or even lose their value totally.

Stablecoins, as their name suggests, are created to maintain a stable price. They're usually around the same price as the underlying asset they are pegged to, such as 1 USD for USD-pegged stablecoins like USDT and USDC. Occasionally, some stablecoins, especially algorithmic stablecoins or those pegged to other cryptos, can lose their value and crash badly, like the Terra UST situation.

When should you hold altcoins vs stablecoins?

Deciding whether to hold altcoins or stablecoins depends on what you're aiming for. Both have their uses, and your decision should match your goals and your comfort with risk. Here's a breakdown:

Holding Altcoins

Affordable Investments: If Bitcoin and Ethereum seem too expensive, altcoins like XRP, APE, MATIC, and SOL can be more budget-friendly. It's a great start for people new to crypto and traders looking to diversify their portfolios.

Potential for Big Gains: Altcoins that are new or growing can lead to quick profits, for instance, during the altcoin season of 2021, when coin prices doubled. For example, ETH went as high as $4864, BNB hit $690, and SOL went up to $259. Staying updated and investing wisely can bring substantial returns in both a bull and bear market.

Short-Term Moves: Altcoins are great for short-term traders. Some promising options like SOL, XRP, and ETH can be added to your portfolio for short-term returns.

Holding Stablecoins

Inflation Hedge: Stablecoins help guard against rising prices and unpredictable crypto market shifts.

Managing Volatility: Swapping crypto altcoins to stablecoins can help minimize loss when major price shifts occur.

Sending Money: Stablecoins can be used for cross-border money transfers (remittances) due to their consistent value.

Final Word

Altcoins vs. Stablecoins: What You Need to Know

Investing in altcoins can offer you up to 10x profit, but they're like roller coasters – they can crash super fast too. Plus, there are so many altcoins on the market, and not all of them are worth your time. Here are the top 10 altcoins to invest in right now:

Stablecoins offer two significant advantages: the stability of fiat currencies and the fast processing and security of cryptocurrencies. They're like steady anchors in the occasionally turbulent crypto ecosystem.de

Deciding whether to go for altcoins or stablecoins depends on how well you can manage risk and what you want from your investment. Ideally, it is best to combine altcoins and stablecoins in your portfolio.

To set up your portfolio today, create an account on Obiex today by clicking here.

Disclaimer: This article was written by the writer to provide guidance and understanding of cryptocurrency trading. It is not an exhaustive article and should not be taken as financial advice. Obiex will not be held liable for your investment decisions.