Altcoins came into existence shortly after Bitcoin (BTC) and offered an alternative to the most established cryptocurrency. As of May 2024, the market size of crypto in the world is around $2.28 trillion. Out of this, altcoins make up for the market cap of $275.303 billion, according to TradingView. On the flip side, investing in altcoins poses a greater risk compared to traditional cryptocurrencies like Bitcoin and Ether (ETH).
Altcoins offer users an opportunity to earn high returns, especially those who know how to squeeze more earnings from the altcoins they already own. Users may consider this a quick guide for first-time investors in altcoins.
This comprehensive guide covers everything from purchasing digital currencies to selling altcoins online. Whether you’re a beginner or a seasoned trader, explore the fundamentals of the crypto market, learn effective altcoin trading techniques, and discover how to make informed decisions and thrive in the ever-evolving world of altcoin trading.
What is an altcoin?
“Altcoin” is short for “alternative coin.” Altcoins comprise all cryptocurrency coins that are not Bitcoin and include Litecoin (LTC), Uniswap (UNI), Dogecoin (DOGE), Zcash (ZEC) and Cardano (ADA).
Since Bitcoin’s inception in 2009, a plethora of cryptocurrencies have launched in the space, and others keep sprouting up almost daily. These Bitcoin alternatives began diverging further from the Nakamoto consensus mechanism to include various combinations of privacy features, functionalities and supply schedules.
The cryptocurrency market offers a diverse selection of altcoins alongside Bitcoin. Ethereum’s pioneering smart contract capabilities paved the way for a thriving ecosystem of altcoins. Alternatives like Solana, Ripple and Cardano each offer distinct advantages over Ethereum, whether it’s lower fees, faster transactions or a more research-driven development philosophy.
Even meme-inspired altcoins like Dogecoin have found a significant following, while projects such as The Open Network and Avalanche compete with Ethereum on scalability and unique features. The success of memecoins like Shiba Inu (SHIB) demonstrates the unpredictable power of community and market sentiment in the world of altcoins. Polkadot differentiates itself by prioritizing interoperability between blockchains.
Altcoin trading basics
The emergence of numerous altcoins has led to a surge in the development of Bitcoin-altcoin exchange platforms, increasing market activity. As a result, “Where can I buy altcoins?” is a common question among novice cryptocurrency investors seeking to diversify their portfolios.
However, altcoin trading for beginners can be intriguing, as most investors still struggle with where to buy small-cap altcoins. “Small cap” refers to cryptocurrencies with a market capitalization lower than $1 billion.
A sound general principle to follow when investing in cryptocurrencies is to arrange them into groups based on their market caps. A larger market cap tends to indicate a safer investment, but this is not a hard rule, and user experiences may vary.
Many platforms allow traders to buy, hold and sell altcoins. However, each of these platforms comes with different privacy policies and features. Thus, the best altcoin exchange depends on several factors, including buyer preferences, financial goals and trading fees.
Nevertheless, numerous users have suffered losses as a result of scams and vulnerabilities exploited on various exchange platforms. Therefore, it is imperative for every investor to conduct transactions exclusively on reputable exchanges and learn effective altcoin trading techniques before committing significant funds.
Moreover, if an investor chooses to trade privately with another investor via direct transactions or peer-to-peer (P2P), they should spend some time identifying reliable traders. For instance, they can protect their investments by conducting significant research on every platform and trader before committing funds.
For new investors, it’s safer to avoid the lesser-known platforms and stick to reputable exchanges like Coinbase, Binance, Kraken or Crypto.com. Before making a purchase, users should shop around to review the permitted exchanges in their respective jurisdictions and check the exchange markets to ensure that they have access to the cryptocurrencies of their choice. It’s also prudent to consider the exchange fees to avoid spending more when there are cheaper options out there.
How to buy altcoins
The process for buying cryptocurrencies on different platforms may differ slightly, but the steps are mostly similar and fairly straightforward. While exchanges are safe for beginners and help users avoid fraud, advanced traders may choose to purchase altcoins from owners over the counter (OTC).
Before making an altcoin purchase, the following are some steps to consider.
Step 1. Decide on a percentage of portfolio allocation for the investment
Most altcoins are still in an experimental phase, while many other teams have launched their coins and then vanished after dumping their allocated sums on the market (also known as a rug pull). Thus, a significant percentage of blockchain projects fail pretty quickly.
Purchasing altcoins is a fairly risky investment, and the chances of the coin sinking are relatively high. Therefore, it’s safer to divide a portfolio into different risk layers, especially for investors eyeing lesser-known altcoins.
Step 2: Shop around for the most promising coins
Thousands of altcoins are available for investors. Whether one is suitable for investment depends on several factors, including the investor’s needs and preferences.
Thus, every user should learn more about altcoins that are tied to their favorite projects. They should also examine their various features and select the coins that most appeal to them. Some of the critical questions to ask during this process include the following:
These questions will help guide users to arrive at viable decisions and pick the right altcoin in which to invest.
Step 3: Exchange fiat currency for cryptocurrency
Most exchanges aren’t fiat on-ramp platforms and do not support United States dollar purchases. Thus, investors are required to purchase supported cryptocurrencies and then swap them for altcoins on the exchange.
Several exchanges allow the direct purchase of cryptocurrencies via credit card, making it easy to obtain coins for an altcoin exchange.
Step 4: Pick a reputable exchange
With a bag of cryptocurrencies ready for trading on an altcoin exchange, investors will have to identify the exchanges that offer their favorite altcoin. New buyers are safer when transacting on popular exchanges since they have high liquidity and fewer fraud cases.
Thus, it’s essential to find different cryptocurrency exchanges that offer a favorable trading pair. Once they identify the trading pair they want, users begin trading their coins. But before executing a trade, here are some critical questions to consider:
Step 5: Pick a currency pair
The next step is to connect a Web3 wallet to the exchange. Before executing a trade, it’s worth noting the trends of the currency pair and its performance over the past month or few weeks to ensure that the user makes the trade at the best time.
Step 6: Execute the trade
If the conditions look promising and the user is ready to make the trade, it’s time to execute. If trading for the first time, invest some time in learning how orders work and then place an order for the desired altcoin on the exchange.
Step 7: Check if the altcoins are credited to the wallet
Having executed the trade, the cryptocurrency will already be sitting in the wallet. The only time a user must transfer their funds from an exchange to their wallet is when the exchange is centralized.
For decentralized exchanges (DEXs), funds are not held in the exchange’s custody unless they’re part of liquidity pools, yield farming or some other decentralized finance (DeFi) use case.
Crypto wallets are available in two different forms: cold (also called “hard” because they’re hardware) and hot wallets. Cold wallets like Trezor and Ledger are USB-like devices that store a user’s private keys, making it difficult for hackers to control user funds without also having physical access to the hard wallet.
Hot wallets, by comparison, are connected and hosted online, either via a phone (Trust wallet), desktop (Daedalus) or web app (MetaMask). Hot wallets are more vulnerable in terms of security, but lower security affords greater convenience to users.
Cryptocurrency exchanges for altcoins
Every altcoin investor needs a cryptocurrency exchange platform to begin trading. Hundreds of cryptocurrency exchanges are available to users. However, the very best platforms that are reputed to be dependable are few. Picking those that would be ideal depends on several factors, including a user’s circumstances, experience, preferences and reasons behind trading.
The following are some of the best exchanges.
For mobile users: Gemini
Gemini comes with a sleek mobile app that’s compatible with Android and iOS mobile devices. The Gemini app also lets users monitor their assets and manage their wallets on the go.
Similarly, the crypto exchange comes with an insured wallet, providing an additional layer of security, and in addition to Bitcoin, Gemini supports up to 25 altcoins.
For active investors: eToro
The eToro crypto exchange has a social media platform that connects users and allows them to share ideas. Its simple interface makes it an ideal choice for many new investors who are reluctant to dive into crypto.
Moreover, eToro comes with an additional CopyTrader feature, allowing users to control their portfolio allocations according to the portfolios of the most successful traders on eToro.
For users who want crypto-back rewards: Crypto.com
Crypto.com supports the storage, transfer and exchange of up to 350+ cryptocurrencies on its platform. It also has a crypto Visa card that lets investors make crypto payments and earn up to 5% crypto back.
It has several products, including Crypto Earn, Crypto Credit, a DeFi wallet and more. The exchange serves anyone keen on using a wide range of products and services that will facilitate onboarding for those who are new to crypto.
For a competitive fee structure: Kraken
Kraken stands out for offering a more competitive fee structure to active traders because they can save on fees as trading volume increases. The exchange offers discounts for higher volume traders. Currently supporting around 200 currencies, it also offers users high liquidity, with an average daily trading volume exceeding $500 million.
To ensure the safety of user funds, Kraken has put in place PGP/GPG encryption for email communications, two-factor authentication (2FA) and a global setting lock. The user interface is customizable between basic and advanced views. For large trades over $100,000, the exchange offers an OTC desk for secure and fast execution.
For altcoin variety: Binance
Binance supports hundreds of altcoins and offers numerous built-in features for traders interested in passive income. Furthermore, it’s one of the few crypto platforms that allow exchanges in Tether (USDT), the United States dollar or BTC trading pairs.
Binance also has its own coin, BNB (BNB), which investors can use to fund transfer fees and offer financial derivatives in select locations.
How to buy altcoins on Uniswap
Uniswap is a DEX for trading tokens under the ERC-20 standard. Here are the steps for trading altcoins using the Uniswap wallet:
Step 1: Install Uniswap
Install Uniswap from its website, Uniswap.org, the Google Play Store or the Apple Play Store.
Step 2: Confirm the recovery phrase
Open the wallet when it is installed. The wallet will generate a recovery phrase that the user should write down on a piece of paper to regain access to their funds in case the smartphone gets stolen or damaged.
The wallet will ask the user to confirm the recovery phrase. On a screen with vacant slots for the words in the recovery phrase, the user needs to fill in the words in the same order by entering the correct words.
Step 3: Select a username and upload a profile photo
The user now needs to upload a profile photo (optional) and choose a username for themselves. Anyone can send crypto to this username. One could add an extra layer of security through biometrics.
Step 4: Create a wallet
The user now needs to create a new wallet or add an existing wallet. Tapping “Create a new wallet” will create a new wallet for the user. If the user taps on “Add an existing wallet,” a prompt will appear asking them to choose from several options.
Step 5: Buy and receive crypto
The user can now tap the left icon resembling a bank card on the screen to buy and receive crypto. With Uniswap, one can buy crypto with a card or a bank account or receive crypto from another wallet or account.
Step 6: Buy crypto with a card
When one taps “Buy crypto with card,” a window appears where they need to fill in the amount they want to buy crypto for. In the given example, the user wants to buy $300 worth of ETH using their wallet or bank account. The user may tap on the cryptocurrency to choose any other digital asset from the list that appears.
Tap “Continue” and choose from the options given to complete the procedure. In this example, one could choose between MoonPay, Banxa and Transak. Uniswap connects users to the chosen app, where they can complete the transfer.
Uniswap also allows users to transfer crypto from some other wallet to Uniswap by tapping “Receive crypto.” One may connect their wallet either by scanning the QR code that appears on another smartphone with the wallet or by tapping on the button “Scan a QR code” to scan the QR code on another. Once the wallets are connected, the user can complete the process of crypto transfer.
On Uniswap, one cannot sell their crypto, but they can swap it and send it to any wallet address they want. To sell it, the user could move their crypto to a centralized exchange and sell it.
How to buy Ether (ETH) on Binance
Here is a step-by-step guide on how to buy Ether (ETH) on Binance.
Step 1: Create an account
One has to sign up for a Binance account via the website or mobile app. Enter an email address or phone number to sign up.
Step 2: Verification
After one signs into the account, one needs to verify their identity. Typically, this involves uploading documents in line with Know Your Customer (KYC) policies.
Step 3: Buy ETH
Click or tap the “Buy Crypto” tab located at the top of the Binance website interface. One can use their local currency to buy ETH in exchange.
One could buy any crypto, including ETH, using a credit or debit card or bank transfer with fiat currency (such as USD or euros). They could also use any other payment method available locally.
If one has some other currency, they could swap it for the cryptocurrency they want. For instance, if they have USDT, they could swap it for ETH.
Binance allows one to buy crypto directly from a seller using its P2P trading interface. One can choose the seller they want to buy from using the traders’ list and make a payment using the preferred payment method in an escrow account. Once the buyer confirms receiving the crypto, the escrow releases the funds to the seller.
With the P2P cash trade zone, one can locate a nearby store that offers cash as a payment method to buy crypto. The buyer then visits the store to complete the payment.
How to sell Ether (ETH) on Binance
To sell ETH on Binance, one needs to follow the steps below:
Step 1: Navigate to the “Trades” section
After signing into the Binance account, proceed to the platform’s “Trade” section on the main menu.
Step 1.1: Sell on the “Spot” market
On the Binance trading interface, one can see the buy/sell options and order book on the left panel. In the appropriate field, one needs to enter the quantity of ETH they wish to sell. To receive the payment, they could choose a fiat or a cryptocurrency.
If the user wants to sell their ETH at the current market price, they can choose the market price. In case they want to sell at a preferred price level, they could select a limit order and set the limit. The algorithm will sell when the price reaches the limit.
Step 1.2: Sell via margin trading
With margin trading, one can borrow funds from Binance to buy more crypto, enabling the trader to open larger positions with less capital. If the market moves in the trader’s favor, they make larger profits. However, if the market moves against the trader, their risk of losses is greater as well.
Step 1.3: Sell via P2P trading
The seller can choose a buyer from a list depending on factors including the number of orders they have executed and their order conclusion percentage. They can chat with the buyer, receive the payment through the chosen method, and release their crypto.
Step 1.4: Sell via convert and block trade
One can easily make a cryptocurrency pair and swap their crypto with another. There are no trading fees for using Binance Convert. It enables one to buy or sell crypto without having to deal with a trading interface that many may find complex. They can instantly convert their cryptocurrencies or fiat assets at any time with a live price.
How to buy Ether (ETH) on Coinbase
Here is a guide on how to buy ETH via Coinbase:
Step 1: Create an account or log in
One needs to download the Coinbase app to begin the sign-up process or register with the Coinbase website. To complete the process, one will need to upload a valid ID. They might also be requested to provide proof of address, so it is better to have both documents ready.
Step 2: Add a payment method
Go to the “Settings” section of the Coinbase website or wallet. To fund a Coinbase account, one needs to link a bank account, a credit or debit card, or set up any other payment option available.
Step 3: Choose the cryptocurrency
Choose ETH from the list of available cryptocurrencies in the ‘Buy/Sell’ tab on the right side of the screen.
Step 4: Review Order
Review the purchase information, including the price, the quantity of ETH being purchased and any applicable fees.
Step 5: Confirmation
One needs to verify the purchase after going through the order information. Coinbase will debit the appropriate amount from the linked payment method and execute the buy ETH order at the current market price.
How does a trader sell their altcoins?
The process for selling altcoins doesn’t differ significantly from the buying steps outlined above. However, now that users know how to open an account with an exchange wallet, they can log in and follow the steps listed below to sell their coins. The steps are identical to the buying process, but with selling instead:
- Log in to the exchange platform.
- Select the cryptocurrency to sell in the “Markets” tab.
- Enter the number of tokens to sell and the price in their respective fields.
- Check the details and then click the “Sell” button.
How to sell Ether (ETH) on Coinbase
Learn how to sell your ETH via Coinbase through these simple steps:
Step 1: Navigate to “Sell”
One needs to log into their account, go to the Coinbase website or open the Coinbase mobile app. After logging in, select the “Sell” option from the dashboard or home screen.
Step 2: Enter the details
One can choose to sell all of their ETH balance, or they can enter the amount of ETH they wish to sell. There is the option to exchange ETH for fiat money (USD or EUR) or any other coin that Coinbase supports. Don’t forget to choose the payment option.
Step 3: Review and confirmation
To end the transaction, review and confirm the sale. After the sale is finished, the funds will be deposited into the cryptocurrency wallet or account you have chosen for payment methods.
Are altcoins the right investment for crypto users?
Investing in crypto assets is no different than regular investing, but it comes with its own set of risks. High volatility is a given in new markets and presents considerable upside potential compared to traditional markets. While “stabler” altcoins like Ether might have reduced risks, there’s no guarantee that an investment will yield greater returns.
Before investing in altcoins, especially highly volatile options, users should conduct thorough research and invest only what they’re willing to lose. A couple of benefits that come with investing in altcoins include having more room for growth, while some have interesting utilities and offer promising use cases.
Users should be aware of a few other risks associated with investing in altcoins. First, there are thousands in the market, making it challenging not to over diversify. Low liquidity may affect slippage and transaction fees, and selling could become problematic later on. Almost anyone can launch an altcoin. Home-baked decentralized applications (DApps) could be susceptible to security exploits.
Factors to consider and trends to watch
Whether users should invest in altcoins depends on several factors, including the reasons for the purchase, risk averseness and others. As investors say on Wall Street, “Volatility is our friend.”
A trend to keep in mind is that altcoin prices are still coupled to BTC, so when BTC rises and falls, altcoins tend to follow (after ETH). Still, users should exercise caution when considering an altcoin in which to invest.
Although altcoins tend to rise in tandem overall, failing projects will only fall eventually, and most new projects can fade pretty quickly. On the other hand, solid altcoin projects like Ethereum, Polkadot, Cardano and Polygon have stood the test of time and warrant closer investor scrutiny.
Writer: Dilip Kumar Patairya