How to Invest In Altcoins (Updated July 2020)
Learn how to invest in altcoins with this simple, step by step guide for beginner investors.
Introduction
Altcoins — what are those?
Investing in Bitcoin is already a stretch for many people used to traditional investment assets.
The thing is, Bitcoin is only the most well-known of a litany of digital assets making up the cryptocurrency market.
With clear over 2,000 cryptocurrencies and counting, Bitcoin may be the most valuable of all digital assets. Still, there are many other crypto assets that present different opportunities.
The term altcoins is short for alternative coins. Alternatives to Bitcoin, that is.
So, any coin that isn't Bitcoin is, in effect, an altcoin.
Bitcoin usually makes up between 60% to 70% of the total cryptocurrency market capitalization, leaving 30% to 40% of cap space for altcoins to work with.
Investing in altcoins is slightly different from buying Bitcoin, depending on which assets you're after.
That's where this guide to buying altcoins comes in — follow us as we show you the easy way to invest in cryptocurrencies not named Bitcoin.
The complete guide to understanding the emerging Ethereum ecosystem.
Why You Should Consider Altcoins
Before we jump into the explainer portion of this guide, let's get some important considerations out of the way.
Namely, should you buy altcoins?
The answer to that question depends on your goals as a trader or investor. Altcoins have smaller market cap sizes than Bitcoin and are often very dependent on the movements of Bitcoin prices for their value discovery.
If you keep a close eye on intraday coin values, you'll often see altcoins moving independently of Bitcoin to make gains. Suddenly, they dump because Bitcoin has started its rise or fall.
This give and take price action revolving around Bitcoin's gravity is frustrating for traders and investors who try to move against the trend. But, it’s highly rewarding for those who tap into the dynamics between BTC and the rest of the market.
Traders who are keen to exploit price volatility will love altcoins precisely because they move sharply and respond dramatically to tiny gestures.
Their lower liquidity, when compared to Bitcoin, means smaller traders can make larger impacts on an asset's direction, making for more lively trading than is possible in larger markets.
Investors like altcoins for the ground floor effect. Altcoins generally correspond to newer startup projects, allowing early investors to ride from the ground up as the project successfully takes off.
Additionally, ambitious altcoin projects have more future than past, translating into myriad fundamental events that can potentially boost prices, such as new exchange listings, tech developments, partnerships, and product releases.
To summarize, altcoins present investors and traders with an opportunity that is quite literally action-packed.
Step #1: Do Your Own Research
Doing your own research is the first and most fundamental step to investing in altcoins.
At the end of the day, doing your own research, usually referred to as DYOR, can make or break a successful investment.
When researching cryptocurrencies online, you'll encounter endless shills (people trying to convince you to buy their token), making it difficult to know when you're reading genuine information or are prey for special interests.
To avoid this dilemma, use neutral, impartial sources of information. We've collected a few of the best shill-free resources for you to DYOR without despairing over the info's trustworthiness.
Binance Research — Binance's research-wing provides in-depth reports about cryptocurrency assets to help you make informed investment decisions.
ICO Drops — Want to know about the history of a given cryptocurrency asset since day one? ICO Drops has you covered by showing ICO history dating back to pre-investment rounds.
Messari — If you want Binance Research's information with CoinMarketCap's price data, then Messari will hit the spot.
Using these resources helps you create a large list of potential investment targets, bringing us to the next step.
For an extended look at how to do your own research, check out our guide to DYOR.
You can also check out our tips on how to choose altcoins for your investment portfolio.
Step #2: Create a List of Altcoin Investment Targets
Using the resources from step #1 (or your own craftiness), create a list of potential altcoin investment targets.
A great way to start this process is to scan CoinMarketCap or Coinstats for projects that catch your eye. Don't over-intellectualize this step, you can judge projects based on any criteria you want.
At this stage, don’t make commitments. Instead, focus on discovering projects and getting a quick idea of what they're about.
Your large-format list can include at-a-glance interests, which you narrow down to a smaller, more actionable list using the resources from step #1 to do a deeper dive.
Get your list down to a manageable number of projects to research that won't overwhelm your available free time. Five cryptocurrency projects is a solid number to start with and will allow you to explore what those projects offer and how their token economics work.
Step #3: Find the Best Crypto Exchanges for Buying Altcoins
Even if you create the most detailed, data-driven list of altcoin investment choices, it won't help much if you can't find those assets on a trustworthy cryptocurrency exchange.
Here's the deal — cryptocurrency exchanges worth their salt can be hard to come by if you stray beyond the big names.
That's why, as a new investor or startup trader, you should stick with cryptocurrencies offered on mainstream, trusted cryptocurrency exchanges offering plenty of liquidity.
Most traders will claim the best cryptocurrency exchange for buying, selling, and trading altcoins is Binance because of its digital asset selection, SAFU policy, and sheer trading volume.
However, they aren't the only game in town. Other larger, regulated, and highly-reputable cryptocurrency exchanges are:
Coinbase — During the past year, Coinbase has made huge strides in making more altcoins available on their exchange. Since doing so, exchange volumes have increased, showing that trading altcoins is popular with investors the world over.
Huobi — Binance has long been locked in competition with Huobi for the title of the world's largest crypto exchange for several years now. The secret to their mutual success appears to be offering altcoins markets — lots and lots of altcoin markets.
Kraken — Like Coinbase, Kraken avoided listing altcoins until recently. Now that they've jumped on the altcoin wagon, they're onboarding more users than ever.
Smaller exchanges specializing in altcoin trading are KuCoin, HitBTC, and Bittrex. Far from being unknown quantities, these exchanges have years of proven history in the exchange space, and often carry cryptocurrency assets unavailable elsewhere.
Step #4: Buy Bitcoin, or Buy Altcoins With Cash
Wait a second, isn't this supposed to be about investing in altcoins, and not Bitcoin?
So then why would we mention buying Bitcoin?
Because the only way to buy altcoins in certain circumstances is by trading for them using Bitcoin pairs.
Bitcoin is the reserve currency of the cryptocurrency market. When you can't buy an altcoin with cash, then your next best bet is to use Bitcoin.
Every altcoin worth its salt has a Bitcoin trading pair at one of the trusted cryptocurrency exchanges mentioned in step #3. As long as you have BTC, you have market mobility.
If you need to buy an altcoin with Bitcoin, then the best route is to do everything on the same exchange. For instance, you can...
Go to Binance, create an account, and buy Bitcoin. Need to know how to buy Bitcoin? Check out our How to Invest In Bitcoin guide.
After loading your wallet with BTC, find the BTC market for the token you want to buy. It will be represented by a trading pair, i.e., ALTCOIN/BTC.
Determine how much of the altcoin you want to buy. There are two simple ways to do this. Either buy the amount you want to spend in BTC or switch back to the BTC/USD market to view how much (in cash) your altcoin buy is worth.
Trade your BTC for the altcoin...boom! You're done.
On the other hand, maybe the altcoin you're buying is large enough to have its own cash to crypto route on the exchange.
Digital assets like COMP are available for purchase using USD, EUR, and other fiat currencies directly on exchanges like Coinbase.
If that's the case for the altcoin you selected, then the steps to buying are simplified.
Go to the exchange of your choice, create an account, then proceed to the altcoin market corresponding to your local fiat currency.
If you haven't already deposited cash into your crypto exchange cash wallet, do so now. Bank transfers may take several days to arrive, whereas buying crypto with credit or debit cards is instant.
Measure out your purchase, then load your wallet with altcoins! That's all there is to it.
How should you determine when to buy altcoins? That is an entirely different subject, having to do with cryptocurrency investment strategies.
One popular approach is to create your own crypto index fund so you have wide-exposure to many assets. We've got the perfect guide to creating a crypto index fund here.
Building a Crypto Index Fund
A complete guide to building your own crypto index fund the easy way.
Additional Good Reads
Case Study: Using Machine Learning for Portfolio Management
Cryptocurrency Trading Bots - The Complete Guide
Threshold Rebalancing for Crypto Portfolio Management
In a Nutshell Guide to Ethereum — Easy Ethereum Explanation
Crypto Users who Diversify Perform Better
About Us
Shrimpy is an account aggregating platform for cryptocurrency. It is designed for both professional and novice traders to come and learn about the growing crypto industry. Trade with ease, track your performance, and analyze the market. Shrimpy is the trusted platform for trading over $13B in digital assets.
Follow us on Twitter for updates!
Thanks for stopping by!
The Shrimpy Team