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Crypto investors have numerous options for portfolio diversification, and as technology evolves, more investment prospects are being created. Next-gen altcoins, decentralized AI platforms and directed acyclic graphs (DAG) for distributed ledger technology pave the way to the innovative financial industry.
However, due to the numerous alternatives, investors may struggle to make the right decisions on asset allocation based on their risk levels and knowledge. For example, we know altcoins are all the other coins besides Bitcoin, and stablecoins are pegged to official fiat money, so we may find explanations for their popularity. But how can we explain the increasing Pepe value, a cryptocurrency whose price is influenced by the meme community?
These three cryptocurrency categories are important to understand despite your experience with the industry, each with a unique role in the market. Let’s dive in.
Image source: https://unsplash.com/photos/a-group-of-coins-sitting-on-top-of-a-table-U-JHR7avkFY
Altcoins are Bitcoin alternatives
An altcoin is a Bitcoin alternative, as it’s often more approachable than the first cryptocurrency. Altcoins like Ethereum, for example, provide developers with an underlying blockchain and tools and knowledge on smart contracts, decentralized applications, and decentralized finance.
Investors choose altcoins because they’re affordable compared to Bitcoin. At the same time, they can ensure high potential returns and are also suitable for short-term investments. These cryptocurrencies become highly valuable during the altcoin season when their values exceed Bitcoins’.
Altcoins are great for portfolio diversification because technological advancements usually drive them. Ethereum established the power of smart contracts, whereas Solana approached unique protocols to push for the development of Web3 infrastructure.
Stablecoins are safe investments
Stablecoins are cryptocurrencies with features that should minimize volatility. Therefore, their value should be close to constant despite fluctuations or trends. Most stablecoins are pegged to the US dollar, so their value is the equivalent of $1, such as Tether, USDC or Dai.
Users prefer stablecoins instead of other types of assets because they have a fixed amount of cash reserves, are more convenient and reliable in the long-term. Stablecoins are also efficient as a hedge against inflation, so many use them for trading and escrow.
The only issue with stablecoins is that they require financial reserves to guarantee the value of the peg per coin. Few stablecoins have these reserves, and some analyses consider that external audits are required to provide investors with this reassurance.
Meme coins and the power of community
Meme coins are considered to be the least serious cryptocurrencies on the market, as regular memes and community support drive them. Dogecoin was the first meme coin on the market, and it made waves—numerous fans of the Doge meme invested in it immediately after its launch.
Meme coins are also considered to have no use cases and, therefore, no reason for investment. However, they can be used as a means of exchange, so trading and investing count. These cryptocurrencies became popular due to trends, as was the case of Pepe coin, inspired by Pepe the Frog, whose value spiked considerably in moments of more media coverage and internet buzz.
The most crucial element of meme coin is community engagement. We know how hyped investors can take a coin in the mainstream, which is what happens to meme coins. At the same time, they can develop and grow valuable features, such as DeFi integration.
What coin is best for long-term investing?
If you’re looking for long-term investments and a diversified portfolio, allocating resources across all cryptocurrency categories is best. Choose them based on industry, token type and utility because together, coins can minimize the risks of volatility and contribute to a profitable portfolio.
Indeed, meme coins are the riskiest due to their massive spikes in value. Dogecoin, for example, experienced a massive price boom after Elon Musk tweeted about it, but it returned to its previous value a few days after the event. Therefore, they’re not reliable for the long term, and traders prefer them because they offer high chances of profit in short periods.
On the other hand, stablecoins are the safest choices for beginners because their value is less likely to be affected by volatility. However, a portfolio containing only stablecoins isn’t profitable, so a mix of altcoins, Bitcoin and meme coins is ideal.
Will these coins become more stable in the future?
When Bitcoin was launched on the market, its stability was questionable. Still, as time passed and investors became more interested in it, Bitcoin reached the possibility of becoming a legal tender. El Salvador already uses it as official currency, and global companies accept it as payment.
Therefore, it may be possible for altcoins, stablecoins, and meme coins to increase their trust, but this can only happen with the support of proper regulation. Currently, the lack of a legal framework for cryptocurrency and blockchain impedes their capacities and also limits companies’ abilities to safeguard their customers.
What issues would tackle cryptocurrency law?
There are attempts worldwide to regulate cryptocurrency. For example, the European Union established the Markets in Crypto-Assets (MiCA) Regulation, which addresses Bitcoin, Ether, utility tokens, asset-referenced tokens, and electronic money tokens.
Therefore, issuers and traders must have a license linked to the country of operation in which they handle information about the issuer, the assets, and all the associated risks. This includes crypto-asset services providers (CASPs) to support cross-border competition and compliance with anti-money laundering regulations.
Every country can establish its own guidelines for managing digital assets or follow the recommendations of the International Organization of Securities Commissions. Some key ideas include systems of market manipulation, client asset protection, and technological risks. Such standards serve as the basis for an important step forward for technology and better financial services for the people.
What’s your take on these cryptocurrency types?
Apart from Bitcoin, altcoins, stablecoins, and meme coins are the most well-known cryptocurrencies on the market. Their value comes from technological innovations, links to fiat currencies, and community engagement, so they provide different benefits for investors and traders. While they come with other risks and advantages, investors should allocate all of them in their portfolios in various amounts to stabilize volatility and build a profitable and long-term portfolio.