Penny cryptocurrencies are the ones which cost you under a dollar per unit. But, these penny cryptocurrencies do have the upside potential to make you rich, or even wealthy. Given that, many of these cryptocurrencies are shit coins.
The analogy is drawn from penny stocks, where the stock price would be under a dollar.
No idea what a cryptocurrency is? We covered it here.
In this article, we try to explain in detail, what a penny cryptocurrency is, and how to buy the right ones without falling into a pit.
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In the movie, The Wolf of The Wall Street, Jordan Belfort―the hero―is a stockbroker who sells pink sheet stocks and, eventually, builds an empire around it.
Pink sheet stocks are not registered in major stock exchanges and are often traded over the counter. The name came as the stock quotes are circulated using pink-colored sheets.
There is less regulatory compliance required to register and trade a company as pink sheets stock.
Jordan Belfort even sold the stocks of a company whose registered address is a hut in the middle of farmland. He made many illegal moves and sold his clients literally shit. Ultimately, he paid the price for it.
The movie is based on a book written by the real Jordan Belfort. Yes, the events in the film have happened in real life.
Penny cryptocurrencies are sort of pink sheet stocks. But you know, the pink sheets are not illegal either. Jordan Belfort used the modest regulatory compliance and made millions of dollars by selling illicit shares through pink sheets.
So, like pink sheets stocks, not all penny cryptocurrencies are scams. There are good ones. You have to pick hand pick them.
Should you buy Penny Cryptocurrencies?
That depends. Even picking one correct penny cryptocurrency might change your financial life forever.
Let’s say, Bob is interested in buying some penny cryptocurrencies.
He chooses 10 different cryptocurrencies and invests 1,000 USD in each.
After 6 months, 7 of them had become utterly worthless. Two of them doubled in value. And, one is shot so far that its value increased 100 times.
By risking 10,000 USD, and strategically investing them, Bob found that one gold mine that made him 10x profits.
You might think that a hundredfold value increase is an exaggeration. But the history tells you otherwise.
Now the leaders like Bitcoin (BTC), Ethereum (ETH), and Litecoin (LTC) are all penny cryptocurrencies once. These cryptocurrencies had existed from a time when there wasn’t much interest about crypto-assets. And, in fact, then the market wasn’t crowded either.
Anyhow, those times are long gone. But the opportunities are still plenty. You just have to know how to grab them.
In the present day, according to CoinMarketCap, there are 1644 cryptocurrencies available. And, it’s not that hard to find a bunch of penny cryptocurrencies.
So, how would you pick a penny cryptocurrency that will make you huge profits?
Strategies to Buy Penny Cryptocurrencies
In this section, we go through what to look for in a penny cryptocurrency, and what the danger signals to identify, and how to avoid buying a shit coin.
Bitcoin was created to be a peer-to-peer electronic payment system that requires trusting no third-party.
Ethereum platform was created on the belief that a blockchain can do much more than just cryptocurrencies.
So, what is the purpose of the particular cryptocurrency?
Does it solve a real-world problem? If not, forget about it, and move on to the next one. Note that, the same problem would have different solutions. Likewise, a number of penny cryptocurrencies might be trying to solve the same problem in different ways. You have to weigh which one is better. But, how?
Let’s take Ripple (XRP) and Stellar Lumens (XLM).
Both are payment networks and are focused on global payments. They help banks, financial institutions, and individuals to speed up cross-border transfers.
Major institutions like American Express, Santander, and UBS are testing the Ripple network.
On the other hand, non-profits like Praekelt Foundation and businesses alike are using Stellar infrastructure.
Now, how to choose one over the other? Let’s find out.
Ripple was started in 2012. And over 100 financial institutions around the world are using it on a trial basis.
Stellar was started in 2014. But it doesn’t have as much exposure as Ripple has, both are in the news and under the radar of financial institution.
Maximum supply of both cryptocurrencies is around 100 billion coins.
Clearly, Ripple has the advantage to grow in the future. Because it already has highly established business with a good number of clients testing their network.
However, Stellar lumens might also grow well. But it takes time. Instead, there is a chance that if you invest in Ripple (XRP), you will have the better return on investment (ROI), comparatively.
Pumps and Dumps
Artificially increasing the price of an asset and then selling to make profits is known as Pump and Dump. Doing so is illegal in traditional stock markets like NYSE (New York Stock Exchange).
As there is no proper regulation around penny cryptocurrencies, and as they’re growing like mushrooms day by day, a lot of pump and dump schemes happen. Moreover, it is easy to manipulate penny cryptocurrencies as their price is very low.
So, how to spot a pump?
If a whale―a trader with huge assets and market influence―does a pump, it is hard to catch it. Because you can’t get information quickly and be sure of it. There is nothing much you can do here.
But there are Telegram messenger groups that organize pumps and dumps. Here, you need to know when the dumping starts. Because all these things happen in minutes. And, being in the wrong direction and in wrong time can cost you dearly.
So, it is better to avoid this greedy way of making money.
How to avoid a dump?
When the price of a penny cryptocurrency shoots up suddenly, it is better to stay away―as it might signal a probable Pump and Dump scheme.
Also, beware of unsolicited offers about the information on Pump and Dump opportunities. Chances are that you’re about to pay the price for someone else’s profits.
Coins That Fell to Rock Bottom
Back in December 2016, a crypto-platform named BitConnet was launched. The platform facilitated crypto-lending and an exchange. Moreover, users are required to have some BitConnect (BCC) tokens to participate in the platform. That created a massive demand for BCC.
As time passed by, BCC ranked among top ten cryptocurrencies in terms of market capitalization―the value of total coins available in the market.
By the end of 2017, at one time BitConnect token was trading around 460 USD.
In the mid of January 2018, the company has announced they are shutting down the BitConnect platform because of regulatory reasons and bad media.
Since then, the price of BCC plummeted drastically, and now, it is one among penny cryptocurrencies, currently trading around 0.7 USD.
Coins like BCC would never recover. And, investing in them would just be a waste of money.
So, analyze carefully why a coin fell to rock bottom. If you see several reasons that the coin might rise again, then buying would be a good option.
Total Supply Limit
Total supply limit is the number of token/coins of a particular cryptocurrency that would ever be available in the market
Let’s take the Kin token as an example. It is trading around USD 0.000193. The total supply limit is of 10 trillion tokens.
If there is an uptick in the price, that means the value of all the 10 trillion tokens has increased. As the volume is very high, the price of Kin moves relatively slower than a coin that is having similar price and less total supply limit.
For example, Bytecoin (BCN) has around 184 billion tokens, and at the time of writing it is trading at USD 0.006071. In similar market conditions, Bytecoin value increases better than that of Kin.
These are the cryptocurrencies that are there to make money to the people who launched it. Simply put, shitcoins are made to make you miserable.
How to identify them?
- No proper official website. And, the site looks like even a rookie can put it up.
- A whitepaper is not available. Or, the one available is not professional.
- The whitepaper doesn’t explain the project, or can’t convince you what problem it is solving.
- The roadmap for the project is too long to launch the product. Even if the product is launched, by that time, the crypto-market would have got better solutions.
- The team behind the project is not revealed and stays anonymous. Unless the team is designing a privacy-based coin, there is no reason to be in the shadows.
- Social media profiles for the company or the project are not available.
- The project is not marketed well. And, far fewer people know about the project.
- Search about the project in google, if you can’t find them on the first page, probably no one else will. And the project might never gain traction.
All the above rules apply differently to various penny cryptocurrencies. You have to decide it for yourself based on your personal research.
In the world of investing, nothing can beat the knowledge you gain about an asset from your personal research. And, in fact, it is much needed.
Remember, the tragic 2008 US housing bubble, where millions lost jobs and homes. Even the world economy suffered a lot.
Without properly assessing the risk, home loans were given. And debt bonds were created on these home loans and, if the borrower paid the loans timely, the debt bondholder gets the benefit. Even though these bonds were risky, rating agencies gave them an excellent rating.
When investigated, these rating agencies said their ratings are nothing but just opinions.
Now, we’re talking about cryptocurrency investing, which are mostly out of government control and, hard to employ regulations. Sometimes, it is even not possible to find the fraudsters behind the scams.
So, do your own research before making investment decisions.
What to remember while doing personal research?
Only believe the information from sources from trustworthy sources. For example, Bitcoin Magazine, Forbes, NYTimes, and Fortune are some good ones.
If something is too good to be true, you have to keep your senses clear before acting. Luring is a preferred strategy used by many scammers. Emotionally being strong really helps you.
We all know, it is better to be safe than sorry.
You have to spend ample amounts of time before making a decision. And, this is a money game. Trusting random people should be avoided. Even the people close to you might give you bad advice on penny cryptocurrencies without their knowledge. Do your own due diligence, and take the time necessary to make investing decisions.
Plus, you need to figure out, when to sell and, when to buy. Even the prodigies in cryptocurrency trading can go wrong about it, such is the uncertainty of crypto-market.
Another well known golden rule is: don’t put your money that you can’t afford to lose into penny cryptocurrencies.
Also, you need to stay calm when the things don’t go your way. First, analyze why something happened, and take necessary action. Do not do anything irrational when you get panic.
That all being said, if this all seems overwhelming to you. Just stay away from penny cryptocurrencies.
*Disclaimer: The article should not be taken as, and is not intended to provide any investment advice. Claims made in this article do not constitute investment advice and should not be taken as such. Do your own research!