Bitcoin vs. Altcoins:
A 5-Step Guide

Over the past several years, the digital asset ecosystem has seen a substantial rise in both the supply and demand of altcoins—common estimates place the total between 9,000 and 20,000— all varying in utility, value, and overall adoption.¹ While each altcoin seeks to offer something unique to its users, it is helpful for investors to review how the category itself compares to bitcoin when considering either as an investment opportunity. 

Defining an Altcoin

“Altcoin” is a combination of two words: “alternative” and “coin.” The category generally encompasses all digital assets that are not bitcoin—including the popular currency ETH (ether). Each altcoin can be grouped into one of several subcategories based on its function: payment tokens, stablecoins, meme coins, privacy coins, utility tokens, play-to-earn tokens, and governance tokens.

Many altcoins are created specifically to address the perceived limitations of existing digital assets. For example, ether—one of the best-known altcoins and the native token of the Ethereum blockchain—was first conceived in 2013 to help provide developers the means to build decentralized apps using smart contracts. However, there are also altcoins that are not derived from Bitcoin or Ethereum and instead utilize their own blockchain and consensus mechanisms built for a specific use case or community.

Understanding the Rising Popularity of Altcoins

With thousands of altcoins in circulation, the term serves as an umbrella for a diverse array of digital assets, each with its own purpose and underlying technology. With that said, many altcoins share some key similarities that have potentially contributed to the class’s growing popularity, including: 

• Innovation and experimentation: Developers can explore new ideas including consensus mechanisms and governance models, expanding the boundaries of what is possible for decentralized finance. 
• Accessibility: Given the volume of altcoins, some retail investors consider them to be a way to experiment with or gain exposure to digital assets despite the potential volatility. 
• Diverse use cases: Altcoins offer a wide variety of use cases, ranging from stablecoins—which peg their value to an underlying asset and are backed by reserves such as fiat currencies—to play-to-earn coins that serve as in-game currencies.

Although each altcoin varies in its utility and overall adoption rate, these assets could continue playing a prominent role in the digital asset ecosystem.

Identifying Key Differences between Bitcoin vs. Altcoins

Like bitcoin, altcoins leverage blockchain technology to establish an incorruptible, distributed public ledger. However, regardless of which type of altcoin bitcoin is compared to, the latter has several irreplicable differentiators:  

• Longevity: Bitcoin was the first digital asset, originally introduced by its pseudonymous creator in 2009. Now, 15 years later, it is the most widely known digital asset. 
• Value: Bitcoin is the largest digital asset by market cap, at approximately $1.3 trillion and comprises over 50% of the entire digital asset market cap.²
• Volatility: Bitcoin exhibits lower volatility compared to other digital assets due to its prominence and greater market liquidity. Altcoins are often more volatile, experiencing sharp price fluctuations influenced by news, technological advancements, and shifts in investor sentiment. 

Overall, bitcoin enjoys a unique position as the first-ever digital asset. While many prominent altcoins have cultivated growing followings, there is the possibility that newer, less popular coins will fail, whereas bitcoin’s 15-year track record leads many to believe its success could continue.

Positioning Bitcoin as an Aspirational Store of Value

Many altcoins were created for a specific purpose or in response to an existing need. Comparatively, as Bitcoin’s ecosystem matures, it may simultaneously serve many functions—either foundationally or through incremental layers—as its utility is not predicated on serving a single purpose. Instead, bitcoin has the potential to be used as a store of value with the ability for the ecosystem to innovate as the network continues to mature. 

Bitcoin’s programmed characteristics make it fundamentally different from any existing altcoin. Given these inherent differences, some members of the digital asset community believe no other digital asset is likely to soon improve upon bitcoin strictly as a monetary good because bitcoin is currently the most—relative to existing alternatives—secure, decentralized, and sound digital money. 

Adding Digital Assets to a Portfolio: Where to Begin

Due to bitcoin’s inherent differences from all other coins, investors should leverage two distinctly separate frameworks when considering an investment in the digital asset ecosystem. This includes one framework examining the inclusion of bitcoin as an emerging monetary good, and a second considering the addition of other digital assets such as altcoins.  

For a deeper look into why investors should consider bitcoin separately from other digital assets—and how to potentially leverage the above frameworks to do so—read our earlier report, “Bitcoin First Revisited.”