Penny cryptocurrencies: the very name might send off warning signals, conjuring up images of shady stockbrokers swindling their investors and throwing wild, drug-fueled bacchanals, a la Wolf of Wall Street. After all, the cryptocurrency market is a widely unregulated realm, rife with scams and shills looking to part you from your money.
But then again, not counting the big names – Bitcoin, Ethereum, Litecoin, and so on – the vast majority of altcoins could be considered penny cryptos. And look at Ripple and Stellar Lumens. Just because an altcoin is a bargain doesn’t mean it’s untrustworthy.
So before you write them off completely, it’s worthwhile to take a step back from the connotations you associate with “penny stocks” and ask yourself: what is a penny cryptocurrency?
As you might have guessed, any cryptocurrency worth less than $1.00 USD would be considered a penny crypto. They make for risky investments, and are definitely not for the investor looking for a slow but reliable increase to their crypto assets.
There are thousands of coins out there, and a good portion of them, it has to be said, will likely crash and burn. The success of any altcoin is notoriously difficult to predict, and every crypto aficionado has their own thoughts on which altcoins have the potential to increase exponentially and send them to the moon.
Different Types of Penny Cryptocurrencies
Not all penny cryptocurrencies are the same, and when it comes to whether or not a coin may be worth the risk, context is everything. Why does it have a low price, and is it likely to stay that way?
Plentiful Coins
A coin that has a large supply keeping its prices down for the time being could be a good investment. If a coin is structurally sound and has a cohesive whitepaper, a sudden spark in public interest could cause a spike in value, as was the case with Ripple.
Newly-Minted Coins
Similarly, a coin that’s new to the market may owe its penny status to the fact that nobody has heard of it yet. If you do your research and find a coin that strikes you as having potential, it could be worth taking the investment leap.
Fallen Coins
On the other hand, a penny coin that used to be worth more but then took a dip in price is unlikely to recover. To invest in a coin that has plummeted from a great height would require a deep confidence in the cryptocurrency itself (statistically speaking, probably unfounded).
Stagnant Coins
Finally, you have the coins that have been on the market for a considerable amount of time without making any headway. If these projects aren’t exciting or innovative enough to gather momentum, it’s unlikely that’s going to change in the future. That being said, there are always exceptions to this rule, and sometimes a coin will bide its time on the market for a while before having its big break.
Do Your Research
The Golden Rule in the volatile world of cryptocurrencies, this is especially important when it comes to investing in penny cryptos. Be sure that the news you’re basing your decisions on is accurate and up to date, as things can change completely from hour to hour – here today, gone tomorrow!
Also, be sure that you’re investing in a coin because it’s a sound coin with a trustworthy developing team behind it, and not because you’ve been taken in by social media hype. Sadly, because the market is so flooded with coins, a good 90% of them are going to go nowhere. A lot of investing in penny cryptocurrencies is going to end up being the luck of the draw.
As always, when it comes down to it, the responsibility for researching a project before investing is yours and yours alone.
Timing
Another crucial risk to keep in mind when dealing with penny cryptocurrencies is the danger of missing the wave. Buy too soon and you run the risk of mistaking a temporary fluctuation for a boom. Wait too late and you may find yourself buying on the wrong side of the curve.
Worse yet, with penny cryptocurrencies there is always the risk of being the last person to cash out of a defunct coin. With blue-chip coins like Bitcoin or Ethereum, unless there is some sort of a market catastrophe, you can feel relatively secure in the fact that whenever you want to sell your coins, there will be someone out there ready to buy. Not so with penny cryptos – once a coin dies, it’s dead, and there’s no getting that money back.
Penny Cryptocurrencies – Yea or Nay?
It really all depends on what you are looking for out of your investment, how much research you’re willing to do, and how long-term you intend to hold. If you’re looking to make a sizable investment that will make a stable, quasi-permanent addition to your crypto portfolio and bring reliable returns, penny cryptocurrencies are not the way to go.
However, if you have a small portion of your investment budget that you’re willing to speculate with and buy some unheard-of coin on the off-chance that its value might spike, then go wild. Just be prepared to get in and get out quickly – the longer you hold a penny coin, the more likely it is that you’ve already missed its peak.
Dealing with penny cryptocurrencies takes fortitude, nerves of steel, and a keen awareness of the market. But if the ups and downs of mainstream crypto is just too humdrum for you and you’re looking for that extra kick of adrenaline, they might just be for you.
After all, even Bitcoin was once a penny cryptocurrency.
