Bitcoin vs. Altcoin: How Do You Evaluate A Cryptocurrency's Value in 5 Easy Steps

Introduction

Since Bitcoin was created in 2010 and exploded in popularity in recent years, it has been the established market leader in the cryptocurrency industry, with market dominance reaching as high as 80% at several points in the past decade. Although BTC has been synonymous with the crypto industry, this is slowly changing with several blockchain-related innovations emerging from crypto projects outside of the bellwether crypto asset.

In just one year after Bitcoin's creation, numerous alternative cryptocurrencies, also known as altcoins, have been created. Inspired by Bitcoin's blockchain technology, these altcoins typically introduced blockchain use cases that were different from the original Bitcoin iteration. Some of these altcoins can even be considered as direct descendants of Bitcoin, at least in terms of them being created as a spinoff crypto asset after a major update in the Bitcoin blockchain.

In the early 2010s there were only a handful of altcoins; however, since Ethereum's debut in 2015 and subsequent growth in popularity in 2017, the number of available altcoins on the market has significantly increased. Ethereum's smart contract technology made it easier than ever for projects to create their own cryptocurrencies, leading to the formation of several startups that are still major players to this day.

While Bitcoin continues to maintain a sizable, yet slowly dwindling, lead, the overall crypto market has matured to a point where you can now assess the value of each altcoin beyond comparing it to Bitcoin.

Bitcoin vs. Altcoin

At first glance, it's easy to assume that Bitcoin's market dominance makes it the sole worthwhile cryptocurrency to invest in. With its decade-long track record, the ongoing financial revolution it ushered in, and the increasing influence it has exerted towards even the most traditional of financial institutions, Bitcoin is on track to remain the market leader for years to come, barring any extraordinary events.

However, the boom of the overall crypto market has made space for notable altcoins to make their case as major players. While Bitcoin has the attention of even the most basic of crypto traders and owners, altcoins have the luxury to grow their reach and influence. This has led to many instances where several altcoins exhibited growth that surpassed Bitcoin's performance. In recent periods, according to major data platforms, out of the top 100 cryptocurrencies, only a small fraction performed worse than Bitcoin, including a significant portion of the top 20 crypto assets when excluding stablecoins.

Nevertheless, each altcoin comes with its own set of strengths and weaknesses, raising questions about its long-term viability. Many altcoins, particularly those created during the crypto market's boom periods, started out strong but have since crashed due to one factor or another. A few of these have been labeled as outright exit scams, deceiving those who don't practice proper due diligence on their investments.

Five Factors to Look At When Assessing an Altcoin

While no single method stands out in terms of adequately evaluating crypto assets, there are a handful of crucial factors that can reveal a lot about an asset's value and trajectory. When conducting a thorough cryptocurrency evaluation, investors should consider multiple dimensions beyond simple price movements. Below are five key factors that can guide your assessment of any altcoin's merit and potential.

1. Function

Altcoins are typically created with a specific set of use cases that aim to solve a problem in any given industry through a blockchain solution. An altcoin that has no clear-cut function will likely have no future as a store of value. The problem with some altcoins that were initially hyped but ultimately flamed out is that they end up being solutions to a problem that doesn't exist. Other altcoins claim they want to become bigger than Bitcoin, which probably should already be a red flag for potential investors.

When evaluating an altcoin's function, consider these critical questions:

• Does this altcoin do anything substantial other than replicate an existing coin?
• Is the altcoin's purpose both useful and attainable in the near future?
• Does the project address a genuine market need or create unnecessary redundancy?

These questions will help you determine whether the cryptocurrency offers genuine innovation or merely replicates existing solutions.

2. Developers and Support

In the same way that you assess a company's value on the strength of what its team has done to generate business, you should also keep a close eye on the team that operates the crypto project behind the altcoin you're researching. You can start by checking the team's developers and their track records. Beyond the resumes, you should also be able to see how much work they've put into the project, if their efforts have led to positive results, and if they're working hard to inform the public about the progress they've made.

When evaluating the development team, ask yourself the following questions:

• Are the developers capable and reputable?
• Does the team actively work on noteworthy updates for the crypto project?
• Do they strive to improve their product and regularly keep in touch with investors?
• Is there transparency in the project's development roadmap?

Keep in mind, this factor may matter more for new altcoins that have yet to make an impact in the industry. But if an altcoin has been around for quite a while, the next factor will probably be more important.

3. History and Reputation

Sometimes, a crypto project and its associated altcoin may have team members with reputable CVs. However, that's not a guarantee that this particular altcoin will be successful. Sometimes, there are events in an altcoin's history that end up affecting the positive assessments you already have about that crypto asset. Understanding the historical context and reputation of a cryptocurrency is essential for making informed investment decisions.

Beware of the red flags that may come up as you answer the following questions:

• Have there been any scandals in the coin's history?
• Have any security breaches been exposed?
• How long has the altcoin been on the market, and how much has its value increased since then?
• Has the project faced regulatory challenges or compliance issues?
• What is the community sentiment regarding the project?

A thorough examination of an altcoin's past performance and reputation can reveal patterns that indicate future viability.

4. Volume

Unless you're the type of investor who is brave enough to venture into extremely new projects and can tolerate high-risk investments, you should also look into the altcoin's open market performance. In addition to researching the price history, you can check the altcoin's market health through its trade volume. Simply put, when more people trade higher amounts of an altcoin in the market, that altcoin is in good shape. It's even better if people find actual use in that altcoin, as this indicates genuine utility rather than speculative interest.

Trade volume serves as a critical indicator of market liquidity and investor confidence. There are two important questions under this factor:

• How many people are currently using the altcoin?
• Is the altcoin available on any of the major exchanges?
• Does the altcoin maintain consistent trading volume over time?

High trading volume combined with active usage demonstrates that the cryptocurrency has achieved market acceptance and liquidity.

5. Accessibility

If, by this point, you like what you see in the altcoin you're researching, you should probably check how easy it is to acquire the asset. After all, a promising altcoin that's difficult to access is likely more of an inconvenience than a proper asset. Altcoins that are easy to acquire are more accessible to the public and more likely to scale to bigger markets.

When assessing accessibility, check the following:

• How would you purchase the altcoin?
• Will you be able to buy that altcoin via credit card, bank transfer, or peer-to-peer transactions?
• Are there multiple platforms where the asset can be obtained?
• What are the transaction fees associated with acquiring the altcoin?

If the answers to the above questions are unsatisfactory, then you may be better off sticking to your current plan in the meantime until you see an altcoin worth your investment.

Conclusion

When evaluating an altcoin's long-term value, you can add a few more factors to check, depending on what's valuable to you. You can also take cues from factors that are considered by some of the most established companies in the crypto space. In many cases, altcoins are subject to a higher level of scrutiny than established cryptocurrencies.

For instance, major platforms in the crypto industry have their own systems to determine which altcoins are worthy of being offered on their trading platforms. When conducting these reviews, industry leaders typically consider a variety of factors for listing or delisting a crypto asset, such as:

• Commitment of the team to the crypto project
• Level and quality of development activity
• Trading volume and liquidity metrics
• Stability and security of the network from attacks
• Network and smart contract stability
• Level of public communication and transparency
• Responsiveness to periodic due diligence requests
• Evidence of unethical, fraudulent conduct, or negligence
• Contribution to a healthy and sustainable crypto ecosystem

With that being said, we hope this article gives you a more precise process towards picking altcoins suitable for your portfolio and risk appetite. By systematically evaluating altcoins through these five factors and additional criteria, you can make more informed cryptocurrency investment decisions and better assess the true value of any altcoin under consideration.

FAQ

What is the essential difference between Bitcoin and altcoins?

Bitcoin is the first and most established blockchain cryptocurrency with the largest market cap and network effect. Altcoins are alternative cryptocurrencies with different features, smaller adoption, and higher volatility. Bitcoin offers greater stability and trust, while altcoins present higher growth potential but carry greater risks.

How to evaluate the real value of a cryptocurrency project?

Evaluate by analyzing market demand, real-world applications, active community engagement, transaction volume, development activity, tokenomics, and competitive positioning. Strong fundamentals indicate sustainable value.

Is investing in altcoins riskier than investing in Bitcoin? Why?

Yes, altcoins carry higher risks than Bitcoin due to lower liquidity, less regulatory oversight, higher volatility, and greater susceptibility to market manipulation. Bitcoin's established network and widespread adoption provide more stability and security.

What are the key metrics to consider when evaluating cryptocurrency value (market cap, liquidity, team, etc.)?

Key metrics include market cap, trading volume, and liquidity. Market cap indicates asset size, trading volume reflects market activity, and liquidity measures ease of trading. Also evaluate team experience, technology fundamentals, and adoption growth for comprehensive assessment.

How to identify high-quality cryptocurrency projects and avoid investment scams?

Evaluate projects by examining real-world utility, underlying technology, and team transparency. Review whitepapers and development progress. Verify team credentials and avoid unrealistic return promises. Check community engagement and project governance.

How important is technical analysis in cryptocurrency investing?

Technical analysis is crucial for predicting price trends and identifying trading opportunities in crypto markets. When combined with fundamental analysis, it provides a more comprehensive investment strategy. However, it has limitations and shouldn't be the sole basis for investment decisions, especially during market volatility.

Why do altcoins have higher potential returns than Bitcoin, but also greater risks?

Altcoins have smaller market caps and higher growth potential, attracting larger percentage gains. However, they lack Bitcoin's liquidity, adoption, and regulatory clarity, making them more volatile and susceptible to failure.