The title basically says it all, I'm a new investor looking to fill out my portfolio but I also want to know the lay for the market, what cryptos are worthwhile, and why?
I find this article convincing in its analysis of the dynamics between Bitcoin and competing networks: The Coming Demise of the Altcoins
To summarize briefly, the author suggests:
- The utility provided by a currency system is related to the willingness of its users to save using that currency.
- Currencies have a strong network effect.
- Most altcoins don't have a significant technological advantage over Bitcoin.
- Therefore, altcoins are destined to lose value in comparison to Bitcoin in the long run.
I do recommend reading the article, though.
Bitcoin was the first, the most well known and thus has the most network effect.
The network effect is extremely important and there are examples were better technologies lost to the competition because of the latter's network effect.
In addition, being the oldest running crypto-currency and with the larger market cap means that it was consistently attacked for years; it is the most battle tested and the safest in terms of technical hacking. It also has the largest processing power which means that a majority attack (51%) is not really feasible, incentive-wise.
Most altcoins (there are ~700 right now) have nothing new to offer. Some, however, do add new features. They have (maybe debatable) technological advantages over Bitcoin:
- Dash and the master-node layer with their innovative governance model
- Ethereum which allows complex smart contracts to be easily created
- Maidsafe, NXT, BitShares, ...
It is not easy to compare one on one these coins but Bitcoin is in no way superior technically speaking (and some times it can easily be considered worse!).
Technically speaking most innovations happen in altcoins since it is both:
- easier -- they don't have to support compatibility with the large infrastructure that Bitcoin has nor convince so many people for a change
- and safer -- not so much money at stake
Having said that, the altcoin experimentation have greatest risks, could lead to new unexpected attacks and so on. Bitcoin learns from altcoins and can implement some of the features (some cannot without overhauling the system) in the future if they prove successful without risking much.
I believe that there will be many successful crypto-currencies in the future; there are plenty of opportunities. Some could be the de facto ones (e.g. Bitcoin) some can offer more anonymity (Dash) and some might enable the smart contracts of the future (Ethereum). It is already evident that some crypto-currencies gain value even though Bitcoin is stable of even loses value (most notably Ethereum, but others as well).
There is no such thing as "Bitcoin is better/worse than X/Y", especially from an investment point of view. Less known coins that prove themselves will go from 0.01 in value to 100; this kind of increase cannot easily be achieved in Bitcoin anymore.
The following is NOT investment advice!
A portfolio in crypto-currencies needs to be diversified anyway. Some coins have proven themselves in a sense (although there is always great risk!), like Bitcoin and Ethereum. These could be the bulk of a portfolio (but maybe not the most profitable). Others could be less known coins that you believe have a future and although much more risky can yield great profit.
Due to the network effect, the Bitcoin network has the most hashing power behind it, as well as the most investment in it. It had been vetted more than any other cryptocurrency, and the network is watched by more people than the others. It is also accepted by more merchants. This all adds credibility to the network's security, as well as the currency's staying power.
There are a lot of alt coins doing all kinds of innovative things, but Bitcoin remains the most trusted and the focal point of the innovation in the space. Ignoring it in the crypto space borders on negligent.
The space is so broad that your question can't really be answered easily. In general, altcoins are far more risky but offer more potential reward. In general, altcoin portfolios will require far more management to safely retain value.
Also consider that from an investment perspective, bitcoin has more in common with ethereum and dash than ethereum and dash have in common with many of the smaller-tier altcoins. Some actively traded altcoin markets have market valuations as low as $1000, with daily volume in the tens of dollars, whereas ethereum and bitcoin have valuations measured in billions.
Additionally, altcoins have far lower liquidity, which drives their higher volatilities. Top-tier altcoins such as ethereum have sufficient liquidity for the average investor to buy-in without notably affecting the market. Smaller altcoins do not. As the liquidity decreases, the volatility, and thus profit potential, increase. A recommendation to someone investing $50,000 would be quite different than a recommendation to someone investing $500.
The reason bitcoins is the best is this, how many places can you go to and trade coins on the market, like buying and selling like at Bitrex for example? If you go to these sites what do you have to use to pay for your coins you want to purchase, like ethereum, litecoin, dodge, ect. ect. etc.? You will have to use bitcoins as your currency to buy the other coins with. So if you want to own a currency which one would you rather own, the one that you use to buy all the others with or the ones you had to use bitcoins to purchase them with? I think your best bet would be to own the bitcoins. plus you can get visa and mastercard debit cards now that converts your bitcoins to fiat money, like the us dollars or the european euro so you can use your debit card anyplace that takes visa or mastercards. No other coins that i know of will convert to your currency as you spend them from a debit card. I have invested into a mine that auto deposits my bitcoins into my coinbase account every day automatically while i'm spending my bitcoins with my visa card. My mine recharges my card every day without me doing anything. My mine is called hashocean which i have been a member for about 15 months now and getting 30 dollar deposits now and growing, every day with a verified email sent to me, telling me that the deposit has just been made every night at 9:00 pm eastern time on time every night. no other coins is able to do this. it's like having an unlimited visa card that recharges itself or gains money every day for life. So if you want to choose one coin to invest in then bitcoins is the only choice that you can make because it was the first one here and every coin's value is based on the bitcoin price.