Two of the most frequently encountered types of digital coins in the crypto space are altcoins and stablecoins. Although both of these types are regarded as cryptocurrencies, their distinctions are as vast as their names suggest. Understanding these differences is important for anyone planning to enter into the crypto market, whether as a trader or an investor. So altcoins vs. stablecoins: what is the difference? Read on as we dive deep into the basic differences between altcoins and stablecoins in the crypto space.
What is an Altcoin?
Altcoin is any digital coin that isn’t Bitcoin. Yes! It is that vast. Every other crypto on the market besides Bitcoin is an altcoin. Basically, there are over 10,000 altcoins on the market, and here’s a list of the top 10 based on their market cap as of January 2024:
1. ETH – $307.45B
2. BNB – $47.62B
3. SOL – $41.77B
4. XRP – $31.23B
5. ADA – $19. 1B
6. AVAX – $12.98B
7. DOGE – $11.57B
8. TRON – $9.51B
9. DOT – $9.41B
10. LINK – $8.53B
What are the key traits of Altcoins?
Listed below are the key traits of altcoins in the crypto space:
1. Volatility
The prices of altcoins are generally a roller coaster, with thrilling highs getting balanced by sudden drops. Altcoin prices are never stable and are liable to swing widely based on the crypto market, news, sentiments, and the crypto project’s underlying tech.
2. Investment potential
Altcoins offer the possibility for explosive growth. However, this growth comes with the risk of volatility, which means that it is just as likely to undergo dramatic collapses.
3. Innovation
Altcoins usually push the limitations of blockchain technology by providing features, such as smart contracts, faster transactions, as well as decentralized applications (dApps). This makes them attractive to tech-savvy investors and people aiming for alternatives to conventional financial systems.
What is Stablecoin?
A Stablecoin is a kind of crypto token that is tied to an asset like fiat currency (regular money) or gold so that its value does not fluctuate as much as other regular cryptos like BTC, DOGE, ETH, XRP, etc.
The support it gets from this asset helps keep it relatively stable since its value is tied to the asset’s value. Currently, over 200 stablecoins are existing on the market, and here’s a list of the top 10 according to their market cap as of January 2024:
1. USDT – $95.13B
2. USDC – $25.50B
3. DAI – $5.35B
4. FDUSD – $2.10B
5. TUSD – $1.89B
6. FRAX – $646.47M
7. XAUT – $504.77M
8. BUSD – $412.10M
9. USDP – $363.34 M
10. PYUSD – $294.74M
Check this out: What is a crypto ETF? Everything to know
What are the key traits of stablecoins?
Listed below are the key traits of stablecoins in the crypto space:
1. Price Stability
Since stablecoins are tied to a real-life asset, they have minimal price fluctuations, which means that they are not really affected by volatility. This makes them excellent for executing daily transactions, storing value, and even hedging against the high volatility of other cryptos.
2. Lower risk
While not completely risk-free, stablecoins provide a safer haven compared to altcoins. However, since they are safer, their potential for high profits is also much lower.
3. Payment ease
Imagine transferring funds internationally without experiencing any delay or needing to pay exorbitant fees. With stablecoins, this is possible because they facilitate fast and cheap cross-border transactions.
Altcoins vs. Stablecoins: What is the Difference?
So altcoins vs. stablecoins: what is the difference? Although altcoins and stablecoins are both cryptocurrencies, they are two completely different types of cryptocurrencies. Each of these tokens serves different goals within the wider cryptocurrency ecosystem. Here are the major differences between these two kinds of digital coins:
1. Price
Altcoins are widely known for their extreme volatility. Essentially, the prices of these tokens frequently move up and down due to factors like the economy, sentiments, regulations, as well as general market forces. Although some altcoins like Ethereum have risen to become the second most valuable cryptocurrency, the majority of them are likely to face sharp declines. This decline may even cause them to lose their value completely.
As the name implies, stablecoins were built to maintain a stable price and combat the extreme volatility in the crypto space. These tokens are usually about the same price as the asset to which they are pegged to. For instance, the USDT is pegged to the U.S. Dollar, hence, the price of 1 USDT token is approximately the same price as the dollar.
Sometimes, some stablecoins, especially the ones tied to other cryptocurrencies (algorithmic stablecoins), can lose their value. This can cause their prices to crash badly.
2. Purpose
Generally, Altcoins are built to provide a solution to the limitations of other cryptocurrencies. They offer unique features like smart contracts, decentralized applications, and faster transaction completion rate.
Contrarily, stablecoins are primarily built to provide stability to the fluctuating price of the crypto market. This makes them very suitable for users who have low-risk tolerance or who need to invest in crypto safely. Stablecoins are usually used to trade other kinds of cryptocurrencies and transfer money both locally and internationally.
3. Functionality
Although Bitcoin is the leading cryptocurrency, it still has certain limitations. Fortunately, altcoins were created to solve the limitations of Bitcoin and even bring fresh features to the crypto space.
For instance, Ripple, an altcoin, allows users and crypto traders to make payments at a faster and lower rate. Ethereum basically brought up the whole concept of smart contracts, facilitating the invention of decentralized applications (DApps). Solana is used to develop NFT applications that enable users to produce and trade digital artwork seamlessly.
These unique use cases listed above make the cryptocurrency and blockchain space far more user-friendly and useful. Also, it increases its acceptance across other conventional industries.
As for stablecoins, they primarily prioritize stability and usability. Essentially, this means that they provide a more dependable mode of exchange as well as a relatively stable store of value, which reduces the price volatility in association with altcoins and Bitcoin. This stability means stablecoins are far more suitable for daily transactions and regular financial applications.
Where can I buy Altcoins & Stablecoins?
With 10+ Altcoins and Stablecoins to choose from, Bitmama is the best platform for purchasing both digital assets at the best prices. You can either purchase through an instant order or directly through the Bitmama P2P platform for cheaper rates. Download the Bitmama app to get started today.
Check out this guide for more information: How to choose the right crypto exchange for trading
Is Ethereum an Altcoin?
By the definition of an altcoin, Ethereum is definitely an altcoin, since it is not Bitcoin. However, some investors believe that ETH doesn’t deserve to be grouped with other altcoins because Ethereum is the first-ever blockchain to have smart contract functionality.
When should you hold Altcoins and Stablecoins?
The decision to either hold altcoins or stablecoins is a personal one that is primarily determined by your goals. Since both of them have their uses, the decision of which one to hold depends on your goals. Here’s a breakdown of some of the benefits of holding any of these tokens:
What are the Benefits of Holding Altcoins?
Here is a list of some benefits of holding Altcoins:
1. Affordable investments
Altcoins generally offer you affordable investments. So it is a great start for new crypto investors and traders seeking to diversify their portfolios. You can invest in affordable altcoins like XRP, MATIC, APE, and SOL if Ethereum is too expensive.
2. Short-term moves
Altcoins are an excellent option for short-term traders. You can add some promising coins, such as SOL, XRP, and even ETH to your portfolio if you want short-term returns.
3. Potential for big gains
Altcoins that are relatively new on the market or still growing can lead to fast profits, especially during a bull run.
What are the benefits of holding Stablecoins?
Here is a list of some top benefits of holding stablecoins:
1. Inflation hedge
Stablecoins generally help to protect against rising prices in the market and unpredictable crypto market swings.
2. Sending money
With stablecoins, you can send money internationally (remittances) very quickly, all thanks to their consistent value.
3. Managing volatility
Trading crypto altcoins to stablecoins can help you minimize loss whenever the market experiences a major price shift.
Why are Stablecoin interest rates so high?
The demand for stablecoins in the market always exceeds the supply. Nevertheless, the interest rates gained by stablecoin are always higher than those gained by fiat money because DeFi protocols help to remove economic rents. Also, these protocols need to incentivize investors to offer liquidity, which clarifies why the interest rates are very high.
Why are Altcoin called Altcoins?
Altcoins, short for alternative coins, is an umbrella term used to characterize all cryptocurrencies besides Bitcoin. Their name originated from the fact that these tokens are alternatives to both Bitcoin and traditional fiat money. The first altcoin, Namecoin, was launched in 2011, and, right now, there are more than 10,000 altcoins in existence.
Altcoins vs. Stablecoins: Which should you choose?
So between altcoins and stablecoins, which option is better? The choice between altcoins and stablecoins all depends on your investment goals and risk tolerance. If you prioritize stability and lower risk, then stablecoins are perfect for you since they provide traders and investors a hedge against the extreme volatility existing in the crypto market.
However, if you are more willing to aim for higher returns and are very comfortable with much higher risk, altcoins may be more suitable for you. Altcoins offer a myriad of creative functionalities and offer you the potential for substantial returns.
Altcoins vs. stablecoins: what is the difference? While stablecoins provide price stability and are very suitable for day-to-day transactions on the market, altcoins offer you many creative features on the blockchain and investment opportunities. As for choosing between stablecoins and altcoins, it is entirely up to you to decide because your choice depends on personal preferences, risk tolerance, and the specific use case involved. Nonetheless, both investors and traders alike need to understand the core differences between altcoins and stablecoins, as it can help them make informed decisions in the market.
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