Bitcoin may be the largest cryptocurrency with a market capitalization of more than $820 billion, but thousands of so-called "altcoins" enable everything from financial services to games. Altcoins represent more than $1 trillion in market capitalization, making them essential for every crypto investor.
Let's look at the best-performing altcoins in 2021 and what the future holds for cryptocurrencies in 2022!
Why Invest in Altcoins?
"Altcoin" refers to any cryptocurrency other than Bitcoin, such as Litecoin, Dogecoin, or Ethereum. Of course, there is no single reason to invest in an altcoin since each project is different. For example, Dogecoin was initially built as a meme, whereas SushiSwap is a decentralized finance token that pays a dividend from smart contract income.
There are many different types of altcoins:
- Cryptocurrencies are digital currencies that seek to improve fiat currencies, similar to Bitcoin's goal. Ex. Dogecoin (DOGE)
- Stablecoins are digital tokens backed by real-world assets that provide a stable store of value. Ex. Tether (USDT)
- Decentralized Finance (DeFi) is an ecosystem of blockchain-based financial services that eliminate intermediaries. Ex. Uniswap (UNI)
- Non-Fungible Tokens are unique tokens representing a digital or physical good, such as a piece of artwork. Ex. Flow (FLOW)
- Play to Earn is a term that describes blockchain-based games featuring a token-based economy. Ex. Decentraland (MANA)
CoinMarketCap further divides altcoins into categories like:
- Marketing tokens typically support ad networks or similar protocols. Ex. Basic Attention Token (BAT)
- Tokenized Stock represents stocks traded on centralized exchanges, like the NASDAQ. Ex. Mirrored Apple (mAAPL)
- Real Estate tokens represent the physical real estate market. Ex. Propy (PRO)
- Exchange tokens are those issued by exchanges to facilitate liquidity. Ex. Binance Coin (BNB)
- Sports tokens represent various sports-related efforts. Ex. FC Barcelona Fan Token (BAR)
Short-term traders may invest in altcoins based on their momentum or other technical factors. On the other hand, long-term investors may seek altcoins that offer a compelling value proposition and growth potential. Either way, investors should do their due diligence by reading whitepapers and understanding an altcoin's goals and objectives.
Top-Performing Altcoins in 2021
There are thousands of different altcoins, but only a fraction of them become highly successful. Investors should factor in the percentage price movement and the overall market capitalization when looking at success. After all, an obscure altcoin with a $10,000 market capitalization could experience a steep rise thanks to a single buyer.
Some of the most significant, best altcoins to invest in 2021 include:
Telcoin enables instant, low-cost remittances through iOS and Android mobile apps. Since the beginning of the year, the service's token that serves as a medium of exchange has soared more than 9,700%, making it the top-performing altcoin over the period.
Axie Infinity (AXS)
Axie Infinity is a play-to-earn game with over 250,000 daily active players. With a collectible component, Axies have been sold for as much as 300 ETH (~US$925,542). In addition, the in-game token, AXS, has soared nearly 9,500% since the beginning of the year.
Solana is one of the fastest-growing blockchains globally, with over 400 projects spanning DeFi, NFTs, Web3, and more. The network is extremely fast with 400ms block times and scalable with less than one cent transaction costs, helping its token soar more than 7,700%.
Fantom is another fast, high-throughput open-source smart contract platform for digital assets and dApps. In addition, the venue features an all-in-one DeFi suite. With its growing adoption rates, the FTM token has soared nearly 7,000% over the past year.
Polygon is a protocol and framework for building Ethereum-compatible blockchain networks. MATIC is the network's ERC-20 token that provides a gateway to multi-chain Ethereum. Over the past year, MATIC has risen more than 6,700%, making it a top-performing altcoin.
Trending Altcoins in 2021
The top-performing altcoins may have been the strongest historical performers over the past year, but other coins may just be starting their rise moving into the latter part of the year and beyond. As a result, investors may want to keep an eye on these coins considering many have smaller market capitalizations than more established cryptocurrencies.
Gala is a developer of blockchain-based games where the GALA coin plays a central role in the in-game economies. Unlike competitors, the Gala Network aims to build a player-owned ecosystem and has already attracted more than 8,000 play-run nodes.
Ariva is a next-generation local tourism and travel network targeting one of the largest industries in the world. The company aims to develop a network where members can meet with global and regional tourism providers with digital payments made in ARV tokens.
Troy is a smart hybrid asset management platform that adheres to inclusivity, profitability, and security principles. The platform offers liquidity and the ability to claim a return on the tokens that the platform uses to operate and quant strategies for global investors.
Tron is seeking to build a decentralized web by supporting many decentralized platforms on its network. Using the TRX token, these apps cover everything from decentralized voting to decentralized exchanges, with high throughput, scalability, and availability.
Conflux is another blockchain network that features high throughput, security, interoperability, scalability, low fees, and built-in staking. Using the CFX token, the network's goal is to enable creators, communities, and markets to connect across borders and protocols.
What Are The Tax Implications on Altcoins?
Taxes have become a big concern for cryptocurrency investors as the IRS steps up enforcement. While the tax agency provided some guidance, there are still many ambiguous areas, especially with altcoins.
The IRS' general stance on cryptocurrencies is that they're taxable as property. So, for example, if you purchase Dogecoin at $0.10 and sell it for $0.20 six months later, you will owe short-term capital gains tax on the $0.10 profit. However, if you hold cryptocurrencies for more than one year, you will be eligible for the lower long-term capital gains tax rate.
Some altcoins present a more complex tax scenario. For instance, if you lend $500 worth of USDC on Compound and receive cUSDC, you might treat the token as a capital gain or interest taxed at ordinary income tax rates. However, since the IRS hasn't issued any specific guidance, the right decision depends on the interpretation of existing tax laws.
Non-fungible tokens, or NFTs, present a similar tax conundrum. In addition to triggering taxes upon purchase, if you sold Ethereum to purchase an NFT, you may treat any increase in the NFT's value as a capital gain or a collectibles tax. The collectible tax rate applies to trading cards or wine and is higher than the capital gains tax rate.
The best way to navigate these complexities is to use dedicated crypto tax software to organize your transactions and work with a professional accountant to ensure that you're making the right decisions. Many accountants offer audit protection or support for an extra fee, which may be a good decision if you're already an audit risk.
The Bottom Line
Bitcoin may be the most well-known cryptocurrency, but altcoins have become increasingly popular over the past decade. In addition to Ethereum and dApps, the rise of non-fungible tokens (NFTs) and decentralized finance (DeFi) has spawned endless possibilities for traders and investors interested in the space.
If you trade cryptocurrencies, ZenLedger can help you keep everything organized for tax time. Try it for free!