What are altcoins and how do I trade them?

What is an altcoin?

‘Altcoin’ refers to every cryptocurrency launched after Bitcoin (BTC), the first cryptocurrency and largest by market capitalisation. It’s a portmanteau that combines ‘alternative’ and ‘coin’, presenting altcoins as an alternative to the original cryptocurrency. 

These alternatives are often designed either to improve upon the limitations of BTC or to introduce new features, such as improved transaction speeds, unique consensus mechanisms and privacy enhancements, smart contracts and decentralised finance (DeFi).

As of December 2024, some of the largest altcoins by market capitalisation are:

• Ethereum (ETH) – known for its programmable blockchain which enables smart contracts, powers a majority of decentralised apps (dApps), DeFi protocols and non-fungible token (NFT) projects.
• Ripple (XRP) – used by Ripple’s payment network, and aims to facilitate fast, low-cost international money transfers for financial institutions, using unique consensus protocols.
• Tether (USDT) –  a stablecoin pegged to the US dollar, often used as a bridge asset in crypto trading and liquidity provision.
• Solana (SOL) – known for its high transaction speeds and low fees, it’s frequently adopted by dApps and blockchain-based gaming projects.
• Dogecoin (DOGE) – originally created as a lighthearted parody of BTC, it gained mainstream attention thanks to its active community and support from Elon Musk.

What are the different types of altcoins?

As of December 2024, there are over 10,000 active cryptocurrencies worldwide, each designed with a specific purpose or function in mind. These can range from practical applications like powering decentralised networks to more speculative assets driven by community support.

Here’s a closer look at the most common types of altcoins:

As shown, intent and use cases can vary significantly from one altcoin to the next, owing to the sheer variety of cryptocurrencies available.

Learn more about stablecoins, memecoins and the crypto market – read our comprehensive trader’s guides on what are stablecoins, what are memecoins, and what is cryptocurrency trading.

How do altcoins work?

Altcoins operate on blockchain technology, a decentralised network where all transactions are logged, just like Bitcoin (BTC). Often, they introduce innovative new features, functionality and underlying technologies, such as consensus mechanisms, faster transaction speeds, privacy enhancements and programmable smart contracts.

Here’s how altcoins work and what shapes them:

Blockchain technology and consensus mechanisms – while BTC relies on proof-of-work (PoW), many altcoins including Ethereum (ETH) and Solana (SOL) have adopted proof-of-stake (PoS) or its variants, enhance energy efficiency, scalability and transaction throughput. Others, like Ripple (XRP), employ alternative consensus protocols tailored for specific use cases, such as enabling fast and cost-effective cross-border transactions.

Specialised functionalities and use cases – altcoins often have more specialised purposes relative to BTC. Governance tokens like Uniswap (UNI) provide holders with voting rights for protocol changes and upgrades, while utility tokens such as Polygon (MATIC) facilitate transactions within specific networks. These tailored functionalities enable altcoins to cater to niche markets, from decentralised finance (DeFi) to blockchain-based gaming and NFTs.

Tokenomics and supply models – cryptocurrencies have economic structures called tokenomics that influence their value and utility over time. Litecoin (LTC) has a fixed supply cap, which creates scarcity. ETH has a dynamic supply mechanism with both inflationary and deflationary components, while many stablecoins peg their value to fiat currencies, commodities or algorithms to ensure price stability.

Innovation and community-driven growth – some altcoins succeed by innovating and fostering active communities. Projects often engage developers, investors, and enthusiasts to build ecosystems that drive adoption and utility. For instance, memecoins like Dogecoin (DOGE) thrive due to their strong, community-driven approach and viral appeal, even without significant technical advantages.

Altcoin trading: What are the risks and opportunities?

Learn the potential opportunities and the associated risks when trading altcoins, and consider stop-loss orders*, which aim to limit potential losses by automatically selling an asset when its price reaches a predetermined level. Here are some of the key ones:

Market volatility

Altcoin prices are known for substantial volatility, influenced by market sentiment, technological developments and BTC’s price movements.

Potential opportunities include short-term trading strategies, as scalp traders and day traders could benefit from price fluctuations by anticipating steep price movements. Diversification across various altcoins may help to spread risk and potentially capture returns from different sectors, such as DeFi, gaming or NFTs.

Potential risks may arise when trading altcoins with low liquidity or small market capitalisation, which can lead to issues like insufficient demand to fill orders, a phenomenon known as slippage. Volatility also poses a risk of the market suddenly changing course and moving in a potentially unfavourable direction.

Fundamental value and innovation

Altcoins often introduce new functionalities, from advanced smart contracts to unique consensus mechanisms, influencing their long–term viability.

Potential opportunities include investing early in innovative altcoins with strong fundamentals and active developer ecosystems. Early adopters may gain significant returns if these projects (1) deliver on their potential and (2) resonate with the market. Altcoins with meaningful use cases and partnerships can attract institutional interest and drive long-term growth.

Potential risks include unproven technologies that fail to deliver on promises, eroding market confidence. The ambitious goals of some altcoin developers can increase the likelihood of failure. Moreover, with thousands of altcoins competing for market share, adoption may be limited for projects lacking differentiation or resources.

Regulatory environment

As the altcoin market evolves, regulators worldwide are assessing how to oversee it.

Potential opportunities include increased legitimacy and improved market access. Regulatory clarity may encourage more platforms to list altcoins, boosting trading volume, liquidity and visibility. Projects that comply with emerging standards could appeal to a broader range of traders and institutional investors.

Potential risks can arise from regulatory uncertainty or sudden policy changes, such as crackdowns on cryptocurrencies or stricter listing requirements. These events could restrict trading, cause delistings, or reduce market liquidity. Compliance costs related to legal requirements might strain development budgets, deterring innovation and limiting market participation.

What are the altcoin trading hours?

Altcoins often run on decentralised blockchain networks that are active 24 hours a day, seven days a week, 365 days a year. This means you can trade altcoins like ETH, XRP, SOL and DOGE at any time, including weekends and holidays.

• Cryptocurrency exchanges – many exchanges facilitate 24/7 trading, allowing for continuous market participation.

• Online trading platforms – some reliable and trusted brokerages provide altcoin trading via CFDs.

If you choose to trade CFDs, you can follow the ETH, XRP, SOL and DOGE performance live in US dollars with our comprehensive ETH/USD, XRP/USD, SOL/USD and DOGE/USD price charts.

Monitoring the cryptocurrency’s activity can help you to keep an eye out for any key fundamental or technical events that may affect short-term movements in its value.

How to buy and trade altcoins

Altcoins are a type of cryptocurrency, meaning that they can be traded directly on a cryptocurrency exchange or peer-to-peer. Traders may also choose to trade altcoins via a derivative, a financial product that takes (or ‘derives’) its value from the price of the underlying asset.

You could use a contract for difference, or CFD, to trade on the price of altcoin pairs – such as the ETH/USD price. A CFD is a contract, typically between a broker and a trader, where one party agrees to pay the other the difference in the value of a security, between the opening and closing of the trade.

You can use CFDs to trade on whether you think ETH/USD will rise (called ‘going long’) or fall (‘going short’). CFDs give you access to leverage, allowing larger positions with a relatively small outlay. This amplifies your potential profits, but also your potential losses, making CFD trading risky. 

You can learn more about trading cryptocurrencies with Capital.com in our comprehensive guide to cryptocurrency trading. 

Aside from CFDs, you can also trade altcoins through instruments like futures, options, ETFs, and mutual funds. Each offers an alternative to the leveraged trading of CFDs, suiting different risk profiles and investment strategies.

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