Bitcoin, ether, alts and stablecoins
Lesson 1 · about 9 min
"Crypto" is a single word for several very different kinds of asset. Before you trade any of them, you should be able to say which kind you are holding and what it is supposed to do. Most beginner losses in this market come from treating everything on the exchange's list as the same thing.
Bitcoin: the one with a fixed supply
Bitcoin (BTC) is a network that keeps a public ledger of who owns how many bitcoin, secured by miners who spend electricity to add new blocks roughly every ten minutes. Its defining feature is a hard supply schedule: a maximum of 21 million coins, issued at a rate that halves every 210,000 blocks (about every four years). Nobody can vote to change that without splitting the network.
For a trader, three things follow. BTC is the deepest and most liquid crypto market. It is the asset most people mean when they say "crypto went up". And its price is driven almost entirely by demand, because supply is known in advance.
Ether: the one that runs programs
Ether (ETH) is the currency of the Ethereum network, which is a shared computer that runs "smart contracts": programs that hold and move money according to rules anyone can read. Most of the things people call "DeFi" (decentralised exchanges, lending pools, stablecoins) are contracts on Ethereum or on networks that copy its design.
ETH is needed to pay for computation on that network (the fee is called "gas"), so its demand is partly tied to how much the network is used. Its supply rules have changed several times by community agreement, which is a real difference from bitcoin.
Alts: everything else
An "altcoin" is any coin that is not bitcoin; in practice traders use it for everything outside BTC and ETH. The category spans:
- Other base-layer networks (often called "L1s") that compete with Ethereum on speed or cost.
- Scaling layers ("L2s") that sit on top of Ethereum and issue their own tokens.
- Application tokens that grant governance or fee rights in a specific protocol.
- Exchange tokens issued by a centralised exchange to give fee discounts.
- Memecoins with no claimed function beyond attention.
The single most important fact about alts is dispersion. In any given year the median alt loses to BTC, a handful massively outperform, and a large number go to near zero. Trading alts is a different, harder game than trading BTC, mostly because of liquidity, which the next lesson covers.
Stablecoins: the dollars inside the system
A stablecoin is a token designed to hold a fixed value, almost always $1. They exist because crypto markets run around the clock and across borders, and moving actual bank dollars in and out is slow. Most crypto trading is priced in stablecoins, not dollars, so you will spend a lot of time holding them.
They are not all built the same way:
| Type | How the peg is held | Main risk |
|---|---|---|
| Fiat-backed | Issuer holds cash and Treasury bills, redeems 1:1 | Issuer solvency, frozen funds, regulation |
| Crypto-collateralised | Over-collateralised with other crypto held in contracts | Collateral crash faster than liquidations |
| Algorithmic | Supply expands and contracts by code, little collateral | Confidence loss; several have gone to zero |
The May 2022 collapse of an algorithmic stablecoin, which took roughly $40 billion of value with it in a week, is the reason to check the "how" column before you park money. A stablecoin that pays an unusually high yield is telling you something about the risk in that column.
Key idea: BTC, ETH, alts and stablecoins are four different asset classes that happen to trade on the same screen. Know which one you hold and what it is supposed to do before you decide what a price move means.
What this means for a beginner
Start with the two deepest markets. BTC and ETH have tight spreads, real order books, and enough history to test ideas on. You can lose plenty of money in them, but you will lose it to the market rather than to a thin book or a disappearing project. Alts and memecoins add liquidity risk, project risk and outright fraud risk on top of price risk. You can graduate to them once you have a working process, and Module 5 gives you the tools to evaluate them when you do.
Try it: Open the market list on any major exchange and sort by 24-hour volume. Classify the top 20 into the four groups above. Note how many are stablecoin pairs (for example BTC/USDT) rather than dollar pairs, and how quickly volume falls off after the first handful of names.
Recap
- Bitcoin has a fixed, predictable supply; its price is a demand story.
- Ether pays for computation on a programmable network; its supply rules can and do change.
- "Alts" is a bucket, not a category. Returns inside it are extremely dispersed and most lose to BTC.
- Stablecoins are the dollars of the system. Check how the peg is held; the mechanism is the risk.
- Beginners should start in BTC and ETH, where liquidity is deep and the risk is mostly price.
See it drawn
Original diagrams for the ideas on this page. Illustrative, not real market data.