add an altcoin to your portfolio

Ready To Add An Altcoin To Your Portfolio? Here’s What You Should Know

Picking an altcoin to buy is slightly different from selecting other services or products because it requires heavy research and thought. However, with the necessary guidance, you can identify the right altcoin for your portfolio without much hassle. 

You’ll soon find out that every altcoin available on the crypto market has a unique history and community of enthusiastic investors. There are countless projects, but not all serve your investment objectives.

While some could prove desirable for some projects, others could turn into scams. You need to identify the assets that could result in price increases in the long run. However, before looking at the list of altcoins you can buy, it’s paramount to understand what they are and their purpose on the market. 

What is an altcoin?

Crypto specialists use the term altcoin to refer to crypto tokens introduced as alternatives to Bitcoin. Altcoin is a contraction of the words “alternative coin” and refers to all cryptocurrencies other than Bitcoin. So, any other digital currency available on the market is an altcoin. Ethereum, Solana, Shiba Inu, Cardano, and all the other thousands of tokens are altcoins. 

Each altcoin was developed to meet a specific objective within its blockchain community. Ethereum was created in the Ethereum ecosystem for payment and transactional purposes. Bananacoin and Trumpcoin have the purpose of raising donations. Picking an altcoin for your portfolio requires understanding its utility, so you should learn more about the different types of altcoins available on the market. 

Types of altcoins

As mentioned before, there are thousands of altcoins in the crypto universe, and it’s best to know what groups they’re part of before buying one. Even if other variants exist, here are the most common altcoin types. 

Security tokens

These altcoins provide ownership rights to the entity that owns them, and the bearer is able to get several shares in the company that legally owns the security tokens. Regulatory agencies consider security tokens securities and put them in the same category as bonds, stocks, and ETFs. The Howey Test classifies an asset as a security if it answers yes to the next questions:

– Can it be a monetary investment?

– Does the joint venture require monetary investment?

– Does the user hope to make revenue?

– Does a third party or promoter make a profit?

Ethereum and other alternative cryptocurrencies don’t meet the requirements to be classified as security tokens because no third party profits from them. 

Meme coins

These altcoins are usually created from the viewpoint of a joke and lack a use case. They usually trend for a short period due to the internet hype generated around the joke. Nevertheless, some meme coins have gained popularity and survived on the market for a longer period; see Shiba Inu and Dogecoin. 

However, if you want to make a long-term investment, adding a meme coin to your portfolio is not wise because it prevents you from storing wealth. Meme coins are ideal for yielding big gains quickly, but you must research the market and watch the trends closely to identify the ideal moment to buy and sell a meme coin. 

Stablecoins

Stablecoins are created with the purpose of reducing crypto price volatility, and their values are usually connected to other assets like commodities, fiat currencies, or other digital currencies. Tether is the most well-known stablecoin, but you can choose from many others on the market.

The majority of stablecoins are connected to the US dollar, and you can easily track their value. Crypto specialists state that stablecoins aren’t ideal for investment purposes because they’re more stable than other digital currencies and don’t generate a high profit. However, they’re fit for saving and sending money. 

Utility tokens

Utility tokens such as ERC-20 are used for payment purposes within a network. For example, when users want to make a transaction or start a project on the Ethereum network, they check the Ethereum price USD to purchase ERC-20 tokens and perform the necessary transactions. Ethereum traders use Ether to make settlements and payments because it’s unregulated and maintains the internal economy within the system.            

Payment tokens

They allow crypto users to complete transactions directly with one another without the involvement of a middleman. Most cryptocurrencies would fall in this category, no matter if they were developed as utility or security tokens. 

Governance tokens

Governance tokens offer their holders particular privileges within the blockchain and are often classified as utility tokens. Usually, governance tokens are native to a private blockchain, and investors use them for blockchain-related purposes. 

Key ways to evaluate an altcoin before adding it to your portfolio

Now that you know what the main categories of altcoins are, let’s learn how to evaluate them to identify the perfect one for your portfolio. 

Visit the altcoin’s official website

A reliable cryptocurrency has a website that provides information about the developers and updates on the evolution of the token. When visiting it, check if the content contains any spelling or grammar errors, provides details about the team members, and highlights the coin’s objectives. 

Read the white paper

Reading the white paper of an altcoin provides you with the necessary tools to evaluate its potential as a worthy addition to your portfolio. The white paper is a road map for the currency and provides information about the tokenomics of the digital asset. 

Check the social media pages

To learn more about the token’s community, visit its social media pages. Reliable altcoins have Reddit, Twitter, and Discord Channels where specialists engage with the audience. If you notice that a page is too spammy with its sales approach, stay away because it may become a scam. 

Have a look at the project’s team

The people behind a project impact the token’s success, and you must ensure that the altcoin you want to add to your portfolio has a reputable team working to improve it.

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