Penny Cryptos are Like Penny Stocks; That is, Risky… but Sometimes a Good Choice Anyways
Bitcoin can cost upwards of $5k, but many cryptocurrencies cost only a fraction of a dollar (or a few satoshis). These are “penny cryptos” (like penny stocks).
First off, there are a few types of penny cryptos. 1. Those that have a large supply, and thus are cheap like Ripple XRP, 2. Those that are newly minted and currently have a low price like KIN, 3. Those that once traded high but have fallen to new lows. These types should not be viewed the same way, a solid coin with many coins like Ripple is a bit more like a blue-chip than a penny stock.
Second off, most cryptocurrencies in general are a bit like penny stocks. They are volatile, subject to manipulation, tend to be lower volume than blue-chip coins like Bitcoin (never-mind blue chip stocks like Coca-Cola), and also often literally cost pennies (although penny stock really just means “shares trading below $5”).
They are like penny stocks in that way, that is in that they are cheap for whatever reason, but they are like them in another way too. In that, you can buy 20 that look good, and while one might make you rich, the rest will likely burn you hard.
So let’s say that again, one might get you rich (and that is sort of an exciting prospect for a middle class investor who wants to take risks in crypto), but the rest will likely get you burned (that is, don’t get cocky thinking that every cheap coin is going to become Stratis; and do note that even that crashed back down after a quick spike).
To be clear, I don’t mean to imply that the odd ICO, newly minted alt, or long-stay with a historically low price isn’t a good bet, it can be if the fundamentals are there. I only mean to imply that historically there has been a lot of misses and only a handful of big hits per X coins considered. With penny stocks, the lure is that if the price goes up a buck or two, there is big bank to be made. With penny cryptos, it is the same thing.
That can be very attractive to the investor with $100 and not $6,000 for a Bitcoin. As, Bitcoin clearly already made its run from .30 cents to thousands (and logically we likely won’t see that sort of growth again).
Thing is, the blue-chips are generally a much smarter bet with stocks. Likewise, blue-chip cryptos like BTC, ETH, and LTC (generally the top 10 cryptos by market cap) are just generally much smarter bets than penny cryptos (if one is looking for ensured value in a single coin).
If the forces that be decide to dump BTC, or the weather changes and everyone dumps BTC for a minute, and one is left holding the bag, they can “hodl” and be pretty confident they will see a return over time as excitement rebuilds.
However, if one is in a new overly hyped alt and gets left holding the bag, especially a no name penny alt, there exists a real possibility no one will ever come along to purchase that bag. This is how it is with penny stocks.
People will pump penny cryptos all day long in social media and the news, they will promise you crazy returns. 9 times out of 10, this is just you being sold Ponzi oil. Remember Wolf of Wall Street, the Leo’s character sold penny stocks at the start of the movie. The ultimate sort of predatory scummy investor’s first move was pushing penny stocks. That should give you an idea of what you are dealing with when you buy into a new coin or ICO. Yeah, I mean, it could be good. But you need to be prepared to jump ship or go down with it.
With all that said, life is all about taking chances. I don’t see a single thing wrong with taking 1% of your investable funds and putting it on a penny crypto or penny stock. What makes me nervous is people going long in penny cryptos or stocks with big money, especially when they get all overly optimistic.
If you are going to go long in crypto, think about the blue-chips. If you want to gamble a bit, look for penny cryptos with fundamentals, a smart white paper, community support, and a good team.
Learn more about one option for penny cryptos, ICOs.
BOTTOMLINE: Penny cryptos can be an exciting prospect for investors without a lot of cash to invest. They can even be a smart investment. However, you really have to know what you are buying and be ready to trade them lightening quick in the event of a pump. As, the penny crypto very often sees a pump followed by a quick dump. If you have guts, want to take a risk, and are set up to trade a given penny crypto, and if you know the risks and have read up on the coin, then by all means, take the risk. Just don’t get lured into penny cryptos without considering their pros and cons and without be prepared.