As bitcoin, the largest cryptocurrency by market value, became more mainstream this year, the number of altcoins, or alternative digital coins, such as XRP and polkadot, in the market began to increase rapidly as well.
Some have garnered more attention than others. Dogecoin, for example, is a meme-inspired altcoin that began as a joke in 2013, but recently surged in popularity. To even its co-founder’s surprise, it’s now one of the top 10 cryptocurrencies by market value and hit an all-time high of nearly 74 cents in May.
This is the result of a number of factors, including social media buzz by big names like billionaire Elon Musk. The SpaceX and Tesla CEO has been a frequent supporter of dogecoin on Twitter, but has also tweeted about other altcoins, like baby dogecoin and shiba inu.
Though it’s not clear whether Musk’s support is serious, his tweets mentioning these altcoins have seemed to impact their price and value.
Seeing this may tempt investors to take part in the action, but experts warn to be especially careful when investing in altcoins. Although cryptocurrency can be a very volatile and speculative investment in general, experts say altcoins can be even more so.
“Risk can be measured in a variety of different ways,” Meltem Demirors, CoinShares chief strategy officer, tells CNBC Make It. But “many of these assets are much more risky than bitcoin and ethereum.”
Here’s what you should know, according to experts.
What is an altcoin?
Altcoins, which are sometimes called “s— coins,” typically refer to the multitude of cryptocurrencies aside from bitcoin. Although bitcoin and ether account for nearly 70% of the cryptocurrency market, as Demirors points out, there are thousands of other cryptocurrencies that exist.
There are many differences between altcoins and bitcoin. For one, most altcoins, like dogecoin, are created quickly with copied source code from other digital coins, including that of bitcoin. Often, altcoins are underdeveloped by design, whereas bitcoin was carefully created with a well thought out ecosystem, white paper and built-in scarcity. Bitcoin was made to be completely decentralized, whereas altcoins can often be controlled by a small group or entity.
