Memecoins
The differences between Bitcoin, altcoins and meme coins explained
But before considering invest in cryptocurrencyIt is important to understand the difference between meme coins, altcoins and bitcoin.
Bitcoin is the original cryptocurrency and the largest in terms of market capitalization with more than $1.3 trillion, according to CoinMarketCap. It was created by Satoshi Nakamoto, a person or group of people whose identity remains a mystery. Nakamoto envisioned bitcoin as an alternative version of virtual money that would not rely on a government or financial institution, such as a bank, to operate and facilitate payments.
Like many cryptocurrencies, bitcoin is powered by blockchain technologywhich functions as a decentralized digital ledger that tracks transactions made within the network.
Bitcoin also has a limited supply of 21 million pieces. This means that no new bitcoins will be issued once 21 million coins have been mined. Scarcity is voluntary; The supply limit ensures that bitcoin remains a scarce asset, so that, theoretically, as demand increases and supply stays the same, the value of bitcoin also increases.
Altcoins, also known as alternative coins, refer to any cryptocurrency other than bitcoin. Although some of these digital tokens may function similarly to bitcoin, they are built on different blockchain networks.
There are thousands of altcoins, which are usually created for a specific purpose. Take stable coins, For example. A stablecoin is a type of altcoin that pegs its value to another asset, such as gold or the US dollar, in an attempt to stabilize its price.
Outside of stablecoins, many altcoins derive their value from market demand and trader preferences. However, this can make them particularly vulnerable to rapid and unexpected price changes, says James Royal, principal investment and wealth management analyst at Bankrate.
“If demand dries up, you’ll be left with worthless digital assets and a good story,” he told CNBC Make It.
Additionally, with so many altcoins available, it is important to be on the lookout for potential scams. One of the most common types of crypto investment scams encourages you to purchase a large amount of a given coin and then transfer it to the scammer’s wallet.
“Before investing in crypto, search online for the name of the company or person and the name of the cryptocurrency, as well as words like ‘review,’ ‘scam,’ or ‘complaint,'” the company said. Federal Trade Commission. says on its website.
Under the umbrella of altcoins are meme coins. These virtual tokens are usually created for fun and are named after Internet memes or pop culture references. And while every meme coin is an altcoin, every altcoin is not necessarily a meme coin.
While all cryptocurrencies carry risks, meme coins can be particularly dangerous for traders, says Royal.
“Meme coins are among the riskiest cryptocurrencies because they seem to emerge out of nowhere and information about them can be scarce,” he says. “They are expected to soar and crash as public opinion shifts one way or another. Meme coins can capture public attention today and disappear tomorrow.”
Aside from stablecoins, most cryptocurrencies are not backed by an underlying asset such as gold, other commodities, or fiat currencies. Many crypto coins are only worth what the next trader is willing to pay for them, which is why they are considered very volatile and subject to unpredictable price fluctuations.
“While well-established cryptocurrencies such as Bitcoin and Ethereum may now have trader sentiment in their favor, they are still ultimately driven solely by sentiment,” Royal said. “If traders decide these coins are no longer worth their time, there is no fundamental activity to support the price of the coins, as there is for stocks.”
Ultimately, Royal says to “avoid cryptocurrencies altogether.” But if you want to “try your luck” in the crypto market, try a Bitcoin exchange traded fundhe says.
An ETF is a type of investment fund that aims to imitate and track the price movement of an asset or basket of assets. You would purchase a Bitcoin ETF through your brokerage account instead of purchasing and storing Bitcoin yourself on a crypto exchange or on Bitcoin’s blockchain network.
“The annual fees are reasonable, cheaper in most cases than buying the crypto yourself, and you are buying a coin that has interest from institutional investors, so demand may remain robust,” Royal said . “You’ll also avoid the security, fraud, and theft issues that have plagued cryptocurrency exchanges in recent years, while paying lower fees.”
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