What Are Altcoins? Beyond Bitcoin and Ethereum

Definition: What Are Altcoins?

An altcoin is any cryptocurrency other than Bitcoin. The term "alt" literally means "alternative." When Bitcoin launched in 2009, it was the only cryptocurrency. Every coin created after—Ethereum, Solana, Cardano, Dogecoin, Ripple—is technically an altcoin.

As of January 2025, there are over 10,000 cryptocurrencies listed on major tracking platforms like CoinGecko and CoinMarketCap. Bitcoin's market capitalization is approximately $1.3 trillion, while the entire altcoin market (excluding Bitcoin) totals roughly $1.8 trillion. This means altcoins, collectively, represent significant liquidity and trading opportunity—but also significant risk concentration in a handful of projects.

Why "Altcoin" Matters as a Category

Bitcoin functions as digital money and a store of value. Most altcoins attempt to solve different problems: Ethereum enables smart contracts and decentralized applications, Solana processes transactions faster than Ethereum, Ripple (XRP) targets cross-border payments, and Chainlink (LINK) brings real-world data onto blockchains.

This functional diversity makes "altcoin" a broad category that includes:

• Layer 1 blockchains (Solana, Cardano, Polkadot) that compete with Ethereum
• Layer 2 networks (Arbitrum, Optimism) that improve Ethereum's scalability
• Specialized blockchains (Chainlink for data, Filecoin for storage, The Graph for indexing)
• DeFi tokens (Aave, Uniswap) that enable decentralized finance protocols
• Meme coins (Dogecoin, Shiba Inu) with little functional purpose

Understanding what problem an altcoin solves is the first step in evaluating whether it's worth trading or holding.

How Altcoins Differ From Bitcoin

Price Volatility

Altcoins are substantially more volatile than Bitcoin. In 2022's bear market, Bitcoin declined 65% from its $69,000 peak to around $16,500. Meanwhile, Ethereum dropped 70% from $4,891 to $883. Many smaller altcoins lost 80-95% of value.

This pattern repeats across market cycles. During the 2017 bull run, Bitcoin returned 1,300%. Ethereum returned 8,000%. Many smaller altcoins returned 50x or more—and then lost 95% in the 2018 crash. Higher volatility means higher potential returns, but also higher risk of catastrophic losses.

Market Capitalization and Liquidity

Bitcoin's $1.3 trillion market cap and $30 billion daily trading volume create deep liquidity, meaning you can buy or sell substantial amounts without moving the price dramatically. Smaller altcoins have thin liquidity; a $100,000 buy order on a micro-cap token can move the price 20-30%.

This liquidity difference has practical implications: Bitcoin trades on every exchange worldwide with tight bid-ask spreads. Smaller altcoins may trade only on 2-3 exchanges with wide spreads and higher slippage (the difference between expected and actual execution price).

Development Activity and Utility

Bitcoin has remained largely unchanged since its launch—intentionally. It prioritizes security and simplicity over new features. Most developers focus on layer 2 improvements (Lightning Network) rather than modifying Bitcoin itself.

Altcoins have active development teams releasing updates, fixing bugs, and adding features. Ethereum has undergone multiple major upgrades (The Merge in 2022, Shanghai in 2023). Solana regularly optimizes its validator software to increase transaction throughput. This active development is necessary to stay competitive—but it also introduces complexity and execution risk.

Supply and Inflation

Bitcoin has a fixed supply cap of 21 million coins. This scarcity is by design and is built into the protocol's rules. No new bitcoins will be created after the final coin is mined (around 2140).

Most altcoins have different supply models:

• Ethereum has unlimited supply, but new coins are minted at a decreasing rate through staking rewards
• Solana started with 488 million coins; new coins are minted indefinitely but at a declining rate
• Ripple (XRP) was pre-mined with 100 billion total coins; inflation occurs through escrow releases
• Dogecoin has unlimited supply with no maximum cap—a 1 million coins created per block forever

Tokenomics (supply mechanics and token distribution) directly impact an altcoin's price dynamics. If a project releases too many new coins into circulation, price appreciation becomes harder. If coins are locked up or burned, supply scarcity can drive price up.

Major Altcoin Categories

Layer 1 Blockchains

Layer 1 blockchains are standalone networks that process transactions independently. Ethereum is the most prominent altcoin Layer 1 because it enables smart contracts—programs that run on the blockchain automatically when conditions are met.

Ethereum (ETH) launched in 2015 with a market cap of less than $1 million. As of January 2025, it trades around $2,500-$3,500 with a market cap of $380 billion. Ethereum's dominance in DeFi and NFTs makes it the altcoin most correlated with Bitcoin, yet still substantially more volatile.

Competitors to Ethereum include:

• Solana (SOL)—Designed for speed and low cost. Transaction fees under $0.01 versus Ethereum's $5-$50. SOL traded below $10 in 2021, peaked at $250 in late 2021, and traded around $200 in January 2025
• Cardano (ADA)—Emphasis on peer-reviewed research and sustainability. ADA peaked at $3.09 in September 2021 and traded around $1.20 in early 2025
• Polkadot (DOT)—Focuses on blockchain interoperability. DOT peaked at $54.98 in May 2021 and traded around $38-$42 in early 2025

DeFi Tokens

DeFi (Decentralized Finance) tokens represent governance rights and value capture in decentralized protocols. Instead of a bank taking fees, a smart contract takes fees—and those fees are distributed to token holders.

Uniswap (UNI) is the largest decentralized exchange. UNI holders vote on protocol upgrades and receive a share of trading fees. UNI launched at $5 in September 2020 and peaked at $44.97 in May 2021. It traded around $18-$25 in early 2025. Holding UNI entitles you to a small portion of Uniswap's trading fees—currently approximately $10-$20 million per day in volume fees.

Aave (AAVE) is a lending protocol where users deposit crypto to earn interest and borrowers pay interest. AAVE peaked at $1,828 in May 2021 and traded around $770 in early 2025. AAVE holders govern the protocol and receive reserve interest.

Oracle and Infrastructure Tokens

Chainlink (LINK) is an oracle that brings real-world data (price feeds, weather, sports scores) onto blockchains. Smart contracts need trusted data sources. LINK peaked at $52.88 in May 2021, crashed to $5 during the 2022 bear market, and recovered to $22-$28 in early 2025.

The Graph (GRT) enables developers to index and query blockchain data efficiently. GRT launched at under $1 in late 2020, peaked at $2.88 in December 2021, and traded around $0.35-$0.45 in early 2025—down 85% from peak.

Meme Coins

Dogecoin (DOGE) started as a joke in 2013 based on the Doge meme. Despite lacking a specific use case, Doge has a $40+ billion market cap (January 2025) because of community loyalty and celebrity endorsements (Elon Musk). DOGE traded under $0.01 for years, peaked at $0.74 in May 2021, and traded around $0.38 in early 2025.

Shiba Inu (SHIB) launched in 2020 as "Dogecoin killer." SHIB peaked at $0.000088 in October 2021 and traded at $0.000013-$0.000018 in early 2025. Many SHIB buyers lost 80-90% while a few early investors gained 1,000%+.

Meme coins carry extreme risk. They have no fundamental cash flows, no technology advantage, and are driven purely by sentiment. Trading meme coins requires understanding that you're speculating on hype cycles, not investing in utility.

How to Evaluate Altcoins

Tokenomics and Supply

Before buying any altcoin, understand how many coins exist and how many more will be created:

• Total Supply: How many coins will ever exist?
• Circulating Supply: How many coins are in circulation now?
• Inflation Rate: How many new coins are created monthly or yearly?
• Token Distribution: Are coins concentrated in founders' hands, locked in escrow, or distributed to early investors?

Example: Solana (SOL) had 488 million total coins at launch. Of those, 260 million were pre-allocated to founders, investors, and team members. Only 228 million went to the public. As of January 2025, ~425 million SOL circulate, with new coins created continuously through staking rewards. If SOL's price rises 2x but circulating supply increases 20%, the value per holder is diluted.

On-Chain Metrics

On-chain metrics measure real activity on a blockchain, not speculative trading:

• Transaction Volume: Total value moved on-chain daily. Higher volume suggests actual use
• Active Addresses: Number of unique wallets transacting. Growth in active addresses indicates adoption
• Exchange Inflows/Outflows: Large outflows suggest holders are moving coins to personal wallets (bullish). Large inflows suggest holders selling into exchanges (bearish)
• Whale Transactions: Movements of large coin quantities. Whale buying can signal institutional conviction; whale selling often precedes price dumps
• Hash Rate (for PoW coins): Computational power securing the network. Rising hash rate = more miners = network strength

Tools like Glassnode, CryptoQuant, and Santiment track these metrics. Ethereum's on-chain transaction volume peaked at $1+ trillion in 2021 and fell to $100-300 billion during the 2022 bear market. The correlation between declining activity and price collapse was clear.

Development Activity

Check how actively the development team is working on the project:

• GitHub commits per month (number of code updates)
• Number of active developers
• Roadmap clarity and delivery track record
• Security audits and bug bounties

A project with 2 developers and 5 commits per month is at extreme risk. A project with 100+ active developers and regular updates is more likely to survive. This is why Ethereum and Solana have survived 10+ years despite multiple crashes; their development communities are large and active.

Regulatory and Legal Risk

Regulatory risk can destroy an altcoin's value overnight. When the SEC sued Ripple (XRP) in December 2020, claiming XRP was an unregistered security, the price crashed from $1.50 to $0.20. The lawsuit dragged on until July 2023; XRP recovered to $0.60+ once the SEC's case weakened.

Ask yourself:

• Is this token classified as a security or commodity?
• Are there pending lawsuits or regulatory investigations?
• Does the project operate in a high-risk jurisdiction?
• Is the team doxxed (publicly identified) or anonymous?

Anonymous teams reduce accountability but don't necessarily indicate fraud. Bitcoin's creator is anonymous. But anonymous teams + no clear use case + promises of 1,000x returns = textbook scam warning signs.

Altcoin Price Dynamics and Market Cycles

Bitcoin Dominance

Bitcoin's market cap as a percentage of total crypto market cap is called "Bitcoin dominance." When Bitcoin dominance is high (65-70%), altcoins underperform. When Bitcoin dominance falls (35-45%), altcoins rally dramatically.

This happens because:

1. Risk-averse investors buy Bitcoin first. During crashes, they exit to dollars before altcoins
2. Bitcoin's hash rate and network effects give it credibility. When Bitcoin is crashing, altcoins crash harder
3. Traders rotate profits from Bitcoin into altcoins after Bitcoin stabilizes post-rally

In early 2021, Bitcoin rallied from $29,000 to $65,000. Bitcoin dominance fell from 70% to 45%. During that period, Ethereum rose from $730 to $4,891 (567%), Solana from $1.50 to $260 (17,300%), and smaller altcoins rose 50-100x. Then Bitcoin crashed 65% in 2022, and altcoins crashed 70-90%.

Altseason

"Altseason" is when altcoins outperform Bitcoin. It typically occurs after Bitcoin bottoms and stabilizes but before the next Bitcoin leg up. The pattern usually unfolds:

1. Month 1: Bitcoin crashes 30-50%, altcoins crash 50-80%
2. Month 2-3: Bitcoin stabilizes, strong institutional buying begins
3. Month 4-8: Bitcoin rallies 50-100%, altcoin investors see Bitcoin gains and FOMO into altcoins, driving altseason
4. Month 9-12: Bitcoin consolidates, altcoins peak and roll over

Altseason in 2021 was exceptional; altcoins (collectively) outperformed Bitcoin for 8 consecutive months. This drove the 100x+ returns on tokens like Polygon, Arbitrum, and Optimism. But altseason ended abruptly when institutional funding rates spiked and Bitcoin dumped in November 2021, triggering a 2-year bear market.

Common Mistakes and Pitfalls to Avoid

Buying at Peak Hype

The worst altcoin trades happen at peak sentiment. When a coin is trending on Twitter, up 500% in a month, and every crypto influencer is shilling it—that's when retail traders pile in at the absolute top.

Example: Axie Infinity (AXS) was a play-to-earn game token that peaked at $164.90 in November 2021 after 10,000% gains. Retail traders bought at $150-$160, expecting it to go to $500. AXS crashed to $4 by 2022 and stayed under $50 through 2024. Early traders gained 1,000x; late traders lost 95%.

Ignoring Tokenomics

Many traders buy altcoins based on price momentum alone, ignoring token supply mechanics. They see a $0.10 coin and think, "If this hits $10, I'll 100x." But if circulating supply is 10 billion coins, the market cap at $10 is $100 billion. If new coins are minted at 1 billion per year, dilution will suppress price growth indefinitely.

Always calculate what market cap a price target implies. If an altcoin would need a $5 trillion market cap (larger than all of crypto combined) to hit your target price, the math doesn't work.

Buying Low-Liquidity Altcoins on Retail Exchanges

Micro-cap altcoins trade on small exchanges or decentralized exchanges (DEXs) with poor liquidity. A 5% position is enormous on these pairs. You can buy in easily but can't exit without moving the price 20-30% against you.

Worse: many micro-cap altcoins are rugpulls waiting to happen. Developers create hype, lock in early investor gains, then abandon the project or steal liquidity from trading pools. If an altcoin has less than $5 million daily volume, assume exit liquidity is poor and the project is high-risk.

Following Influencers and Shills

Crypto influencers often hold positions in the altcoins they promote. When they shill a token on Twitter, they're selling into your buying enthusiasm. Professional traders make their returns on the hype wave before retail piles in; retail (you) buys the top and pays the highest prices.

Any influencer saying "this coin will 100x" is guessing. No one knows. Treat shills as contrarian indicators: high shilling activity often precedes crashes.

Over-Leveraging on Altcoin Futures

Altcoin futures (perpetual contracts) allow 10x, 20x, or higher leverage. A 10% move against your position on 10x leverage liquidates your entire position. Altcoins move 10-20% daily regularly. Leverage amplifies both gains and losses.

From 2021-2023, hundreds of thousands of retail traders were liquidated trading altcoin futures. A single 15% wick (temporary price move) on a leveraged position means total account loss. Avoid leverage until you've profited consistently on spot (unleveraged) positions for 1+ years.

Not Taking Profits

Altcoins are volatility vehicles. They can 5x in a month and then lose 80% in the next month. If an altcoin you bought at $10 reaches $50, that's a 400% gain. Experienced traders exit 50% at 300% gain, let the rest ride, and move to the next opportunity. Retail traders hold, hoping for $200, and end up exiting at $15.

Altseason profits require discipline. Set profit targets (50% of position at 3x gain, 25% at 5x gain, rest on trailing stop losses) and execute them without emotion.

Frequently Asked Questions

What's the difference between altcoins and "shitcoins"?

Altcoin is a broad category including Bitcoin competitors (Ethereum, Solana), DeFi tokens (Aave, Uniswap), and everything else. Shitcoin is a pejorative term for altcoins with little utility or credibility—typically meme coins, abandoned projects, or potential scams. The distinction is subjective; one trader's shitcoin is another's future 100x.

Can I trade altcoins 24/7 like Bitcoin?

Yes, crypto markets trade 24/7 without market hours. However, liquidity is lowest during US sleeping hours (midnight-8 AM Eastern). Bid-ask spreads are wider during low-liquidity periods, meaning worse execution prices. Major altcoins (Ethereum, Solana) maintain decent liquidity; micro-caps can have severe liquidity dry-spells.

Are altcoins safer than Bitcoin?

No. Altcoins are riskier than Bitcoin. Bitcoin has a 15-year history, a fixed supply cap, and the largest network effect. Altcoins face execution risk (developers fail to deliver), tokenomics risk (inflation erodes value), regulatory risk (SEC could classify them as securities), and competition risk (newer blockchains outcompete older ones). Bitcoin could lose 70% in a crash; an altcoin could lose 95%+.

Should I buy altcoins or just stick to Bitcoin and Ethereum?

Bitcoin and Ethereum are lower-risk, higher-conviction positions. Most crypto portfolios should be 60-80% Bitcoin and Ethereum. Altcoins should represent a smaller allocation (10-20%) reserved for higher-conviction, higher-risk plays. If you're unsure about a specific altcoin's utility or risk profile, the smart move is not buying it.

How do I know if an altcoin is a scam?

Red flags include: anonymous team with no accountability, promises of guaranteed returns, no clear use case or product, unsustainable tokenomics (minting billions of coins), no liquidity or trading on shady exchanges, aggressive marketing and influencer shilling, and missing or vague whitepaper. Legitimate projects have doxxed teams, clear roadmaps, real adoption metrics, and modest growth expectations.

What's the best altcoin to buy right now?

This question has no single answer. Altcoins are highest-conviction positions that depend on your thesis and risk tolerance. Ethereum is the safest altcoin bet (second-largest network, massive developer ecosystem, established DeFi). Solana offers higher growth potential but execution risk (network outages have happened before). Smaller altcoins offer bigger upside but 90%+ downside risk. Your best altcoin is the one whose fundamentals you've researched and whose risk you've accepted.

Next Steps: Trading Altcoins Strategically

Now that you understand what altcoins are, how to evaluate them, and what risks they carry, your next steps are:

1. Audit your knowledge of specific altcoins you own or watch. Write down why each exists, what problem it solves, and what could destroy its value. If you can't answer these questions clearly, you don't understand the altcoin well enough to trade it
2. Study on-chain metrics for altcoins you're considering. Track transaction volume, active addresses, and exchange flows over a 3-month period. Do metrics align with hype and price, or is there a divergence?
3. Set profit targets and exit rules before entering any altcoin position. Decide in advance what gains will trigger a partial exit and what price movement will trigger a full exit. Emotional decisions destroy altcoin traders
4. Compare altcoin returns to Bitcoin and Ethereum over rolling 1-month, 3-month, and 1-year periods. Are your altcoin picks outperforming the two market leaders, or underperforming?
5. Read our complete Crypto Trading guide at /learn/crypto for deeper dives into charting, risk management, and position sizing strategies applicable to all crypto assets

Altcoin trading rewards research, discipline, and emotional control. Most altcoins fail. But the altcoins that survive and thrive can deliver 10x, 100x, or even 1,000x returns for traders who bought early and held through volatility. The difference between the successful altcoin traders and the broke ones isn't luck—it's understanding fundamentals, managing risk, and executing without emotion.