An altcoin is any cryptocurrency that is not Bitcoin (BTC). In simple terms, it means “alternative coin.” Altcoins make up a huge part of the crypto market and are often created to compete with Bitcoin by offering better features or functions. You can trade altcoins on popular crypto exchanges.
This article explains what altcoins and stablecoins are, their main differences, and when it makes sense to hold each of them. We’ll also look at some of the most popular stablecoins today.
What is a Stablecoin?
Stablecoins are a type of altcoin designed to maintain a steady price. Unlike other cryptocurrencies that rise and fall sharply, stablecoins aim to keep their value the same at all times.
For example, the DAI stablecoin is always worth $1 because it is pegged to the U.S. dollar. So, 1 DAI = $1.
A stablecoin’s value can be tied to any asset—not just dollars. Still, most stablecoins today are linked to the U.S. dollar since it’s the world’s reserve currency. Stablecoins can also be linked algorithmically to another cryptocurrency.
The first stablecoin ever created was Tether (USDT), but now there are many more in circulation.
Altcoins vs Stablecoins: The Main Differences
The key difference between altcoins and stablecoins is their purpose.
- Altcoins are built to improve on Bitcoin and often introduce new features like smart contracts, faster transactions, or lower fees. They are highly volatile, meaning their prices can rise or fall very quickly. This volatility can bring big profits, but also big risks.
- Stablecoins, on the other hand, are designed for stability. Their value stays fixed because they are backed by cash reserves or managed by algorithms. They are not meant to provide huge profits but to give investors security and convenience when trading.
While altcoins may generate high returns on investment (ROI) for early buyers, stablecoins usually offer smaller but safer returns. Some stablecoins give interest rates between 5% and 20% when used in DeFi platforms.
Because of their stable value, stablecoins are very useful for fast transactions and as a hedge against crypto price swings.
Is Ethereum an Altcoin?
Yes. Ethereum (ETH) is technically an altcoin since it is not Bitcoin.
However, Ethereum is different from most altcoins. It was the first blockchain to allow smart contracts—programs that run on the blockchain without needing a middleman.
Because of its unique role, some investors don’t like calling ETH an “altcoin.” Still, by definition, it falls under that category.
When to Hold Altcoins vs Stablecoins
Both altcoins and stablecoins have different uses, so many investors hold a mix of both. The right balance depends on your risk tolerance and investment goals.
When to Hold Altcoins
Altcoins are attractive for investors who want:
- Affordable entry points – Bitcoin and Ethereum can be expensive, but smaller altcoins are cheaper and more beginner-friendly.
- High returns – Some altcoins can deliver big profits if they grow in popularity.
- Short-term trades – Altcoins often move quickly, so traders can make money by buying and selling at the right times.
Some popular altcoins include Ethereum (ETH), Ripple (XRP), Solana (SOL), Litecoin (LTC), and Polygon (POL).
What is Altcoin Season?
Sometimes, after Bitcoin’s price stabilizes, altcoins start performing better. This period is called Altcoin Season.
It’s considered an altcoin season when most of the top 50 altcoins outperform Bitcoin over a 90-day period. However, predicting it is very difficult since crypto markets change fast.
When to Hold Stablecoins
Stablecoins are useful for:
- Hedging against inflation – Protecting money from losing value due to rising prices.
- Safe trading – Moving out of volatile crypto without converting back to fiat.
- Leverage trading – Using stablecoins as collateral on platforms like dYdX to open long or short trades.
Some of the most popular stablecoins are:
- DAI (MakerDAO’s stablecoin)
- USDC (USD Coin)
- BUSD (Binance USD)
- UST (Terra USD)
Why Stablecoin Interest Rates Are High
Stablecoin demand is greater than supply. That’s why exchanges and DeFi platforms offer higher interest rates on them compared to other coins.
Since stablecoins keep their value fixed, platforms are willing to pay more to attract liquidity. Interest rates for stablecoins can go as high as 10% or more, while altcoins like ETH usually offer 5%–8%.
How Stablecoins Protect Against Inflation
Fiat money (like dollars, euros, or rupees) often loses value over time due to inflation. Stablecoins help fight this problem by letting people buy and hold a digital token that stays pegged to a stable currency like the U.S. dollar.
Unlike fiat, stablecoins can be bought and used globally with just an internet connection. They preserve purchasing power and can easily be exchanged for cash or other cryptocurrencies.
How Stablecoins Hedge Against Crypto Volatility
Let’s look at an example:
- ETH is trading at $3,000.
- The price later drops to $2,000.
If a trader sells ETH at $3,000 and converts it into USDT, they now hold 3,000 USDT. Even if ETH drops in price, their 3,000 USDT still equals $3,000. Later, they can buy ETH again at $2,000, effectively gaining more ETH for the same money.
This is how stablecoins protect traders from heavy losses.
Issues with Stablecoins
A major question about stablecoins is: Are they really backed by money in a vault?
For fiat-backed stablecoins, financial reserves are needed to guarantee that 1 stablecoin = 1 dollar. But because crypto is largely unregulated, many stablecoin projects face doubts about their actual reserves.
Tether (USDT) Controversy
Tether has been criticized for not being fully backed by cash. At times, it claimed to be 100% backed, then later said only 74% was cash or equivalents. In 2021, it even paid an $18.5M fine after an investigation.
Even now, questions remain about whether USDT is truly backed by enough assets.
USD Coin (USDC)
USDC is seen as more transparent than Tether. Its parent company, Circle, works with auditors like Grant Thornton LLP, which releases monthly reserve reports. However, not all of its reserves are cash—only about 60% are, with the rest in bonds and debt instruments.
MakerDAO’s DAI
Unlike fiat-backed stablecoins, DAI is algorithmic and crypto-backed. Its value is managed by Ethereum smart contracts. If the price falls, tokens are bought back to reduce supply. If it rises, new tokens are created.
This system avoids relying on reserves, but in times of high volatility, algorithms can fail, leading to temporary price swings.
Altcoins vs Stablecoins: Key Takeaways
- Altcoins can offer huge profits but are highly risky. The market is also crowded with weak projects.
- Stablecoins provide stability and safety but come with controversies about whether they’re truly backed by reserves.
- The choice depends on your investment goals and risk appetite.
Some investors prefer holding a mix of both—using altcoins for growth and stablecoins for safety. This way, they can create a more balanced portfolio.
