Ethereum Volatility vs Altcoin Risk
Ethereum is one of the largest and most popular cryptocurrencies, used for various applications, including online apps, smart contracts (automated agreements), and digital art known as NFTs. Altcoins are all cryptocurrencies that aren’t Bitcoin, like Cardano, Solana, or Dogecoin.
Both Ethereum and altcoins can be exciting to invest in because their prices can rise a lot, but they also come with challenges. Ethereum’s price fluctuates significantly (known as volatility), and altcoins carry numerous risks that can make them hazardous to invest in.
This blog explains in detail what Ethereum volatility and altcoin risks are, compares them, and provides tips on how to manage these risks.
What is Ethereum Volatility?
Volatility means how much and how fast the price of something, like Ethereum, changes. If you buy Ethereum at $2,000 today, it might be $2,500 tomorrow or drop to $1,500 in a few days. These big price moves happen for a few reasons:
1. Demand and Supply
Ethereum’s price goes up when lots of people want to buy it, like when a new upgrade comes out. It goes down if people sell it, maybe because they’re worried about bad news.
2. News and Events
Big news can significantly impact Ethereum’s price, causing it to jump or fall. For example, when Ethereum upgraded to Ethereum 2.0 in 2022, it became faster and used less energy, resulting in a price increase as people became excited. However, if there’s news about a hack or a country banning cryptocurrency, the price can drop rapidly.
3. Market Trends
Ethereum’s price often moves in tandem with the broader cryptocurrency market. If Bitcoin’s price rises, Ethereum’s price may also rise, as people are generally excited about crypto. If the market crashes, Ethereum typically falls as well.
4. Technology Changes
Ethereum continually improves its system. Updates, such as fixing bugs or adding new features, can increase trust in the product (leading to a price increase) or raise concerns if something goes wrong (resulting in a price decrease).
For example, in 2021, Ethereum’s price surged from $1,400 to over $4,000 in a matter of months, driven by excitement about NFTs and DeFi (decentralized finance applications).
Also Read: Ethereum Pectra Upgrade Explained: How It Benefits Users & Developers
However, in 2022, it dropped below $1,000 when the cryptocurrency market crashed due to economic issues. This volatility means that investors can make significant profits if they buy low and sell high, but they can also incur substantial losses if the price drops suddenly.
Volatility is normal for Ethereum, but it’s less risky than many altcoins because Ethereum has a strong community and real-world uses.
What is Altcoin Risk?
Altcoins are any cryptocurrencies that aren’t Bitcoin. There are thousands of them, such as Cardano, Solana, Polkadot, and even meme coins like Dogecoin. While some altcoins are promising, they come with bigger risks than Ethereum. Here’s a detailed look at why:
1. Big Price Swings
Many altcoins have fewer buyers and sellers than Ethereum. This means that even a small number of trades can have a significant impact on the price change. For example, if one person sells a lot of an altcoin, its price might crash.
2. Scams and Bad Projects
Some altcoins are created by individuals who aim to scam others. They hype up a coin, get people to buy it, then disappear with the money. This is called a “rug pull.”
3. No Real Use
Ethereum is used for apps, NFTs, and smart contracts, so it has value. Many altcoins currently lack practical applications. If nobody uses an altcoin, its price can drop to zero. For instance, many altcoins from 2017, such as Peercoin, aren’t worth much now because they have not been widely adopted.
4. Technical Problems
Altcoins operate on computer systems known as blockchains. If the system has bugs or gets hacked, the altcoin can lose value. In 2020, an altcoin called Yam Finance crashed shortly after its launch, following the discovery of a bug in its code.
5. Government Regulations
Some countries have laws that limit or ban the use of cryptocurrencies. If an altcoin gets banned, it becomes hard to use or sell, and its price crashes. Even rumors of bans can hurt altcoin prices.
6. Hard to Sell (Low Liquidity)
Many altcoins are only traded on small, less liquid exchanges. If you want to sell, there might not be enough buyers, so you’re stuck with the coin. Ethereum is traded on major exchanges like Coinbase, making it easier to buy or sell.
These risks make altcoins less predictable than Ethereum. While some altcoins, such as Solana, have experienced growth due to their strong technology, many others have failed. In 2023, several altcoins lost most of their value within a year, illustrating the risk associated with them.
Ethereum Volatility vs Altcoin Risk
Ethereum and altcoins both have price changes, but they’re different in important ways:
- Trust and Use: Ethereum is the second-largest cryptocurrency after Bitcoin, with a robust network used by millions for applications, NFTs, and more. This makes it more stable, even if its price swings. Many altcoins are relatively new, with smaller teams and fewer users, making them more susceptible to failure. For example, Ethereum has been around since 2015, while many altcoins don’t last a year.
- Trading Volume: Ethereum is highly traded, with billions of dollars exchanged daily. This makes its price changes smoother than altcoins, which might have only thousands of dollars traded. Low trading volume for altcoins means that a single large sale can significantly impact the price.
- Risk Level: Ethereum’s volatility primarily stems from fluctuations in its price, driven by market trends or news. Altcoins exhibit the same price swings but also carry additional risks, including scams, limited use, or technical failures. For example, Ethereum’s price dropped 60% in 2022 but recovered in 2023.
- Liquidity: You can easily buy or sell Ethereum on major exchanges. Many altcoins are listed on smaller exchanges, making it difficult to sell, especially during a crash when nobody wants to buy.
For example, in 2021, Ethereum reached a high of $4,800 due to NFT and DeFi hype, then fell to $1,000 in 2022 during a market crash. It later climbed back to $3,000 by 2024.
Compare that to an altcoin like SafeMoon, which gained hype in 2021 but lost 90% of its value by 2023 due to legal issues and lack of use. Ethereum’s volatility can be scary, but altcoins often have bigger dangers.
How Investors Can Manage These Risks
You can’t avoid volatility or risks in crypto, but you can be smart to reduce losses:
Managing Ethereum Volatility:
- Hold Long-Term: If you believe in Ethereum, keep it for years. Price drops might not matter if it rises later. For example, people who held Ethereum from 2018 to 2021 made big profits despite ups and downs.
- Diversify: Don’t put all your money in Ethereum. Buy other assets, such as stocks or bonds, to diversify the risk.
- Stay Informed: Watch news about Ethereum, such as upgrades or announcements from major companies using it. This helps you guess when prices might change.
Managing Altcoin Risks:
- Research First: Check the altcoin’s website, team, and purpose. Is it solving a real problem? Does the team have experience? For example, Cardano has a strong team and clear goals, which makes it less risky than unknown coins.
- Avoid Hype: If an altcoin is hyped on social media, such as X, be cautious. Scammers use hype to trick people. Look for real facts, not promises of “100x profits.”
- Start Small: Invest a small amount in altcoins, money you’re comfortable losing.
- Check Exchanges: Ensure the altcoin is listed on a reputable exchange. If it’s only on small exchanges, it’s likely riskier.
- Look for Use Cases: Select altcoins with real-world applications, such as Solana for fast transactions or Chainlink for data services.
Conclusion
Ethereum’s volatility means its price can fluctuate significantly due to changes in demand, news, or market trends. It’s risky, but Ethereum’s strong network and real-world uses make it more reliable than most altcoins.
Altcoins have higher risks, including scams, limited use, technical issues, or difficulty in selling.
If you want to invest, research carefully, start small, and don’t expect quick riches. And start with a platform built with you in mind. Download Mudrex today!
FAQs
- What is Ethereum volatility?
Ethereum volatility means its price can fluctuate significantly and rapidly. It might be $2,000 one day and $1,500 the next due to news, demand, or market trends.
- Why are altcoins riskier than Ethereum?
Altcoins are riskier because they have fewer users, can be scams, lack real-world applications, face technical issues, or are difficult to sell compared to Ethereum’s robust network.
- Can Ethereum’s price crash like those of other altcoins?
Yes, Ethereum’s price can drop significantly, as seen in 2022 when it fell by 60%. But it’s less likely to crash to zero because it’s widely used and trusted.
- How can I reduce risks when investing in altcoins?
Research the altcoin’s team and purpose, avoid hyped coins, invest only what you can lose, and choose coins on trusted exchanges with real uses.
- What’s a safe way to invest in Ethereum?
Hold Ethereum long-term, buy small amounts regularly, diversify with other investments, and stay updated on news to handle its price swings.
