Follow these five rules for trading cheap penny cryptocurrencies, and you will improve your chances dramatically
Like penny stocks, there is money to be made in penny cryptocurrencies. However, before delving into tips on how to make money from penny cryptos, it is important to understand what a penny cryptocurrency is all about.
Getting the definition right is important because of the strong emotions that come with crypto. Due to the high-risk nature that characterizes penny stocks, some people may take offense when a project they hold and believe in so deeply, is characterized as a “penny cryptocurrency”. So what is a penny cryptocurrency?
The definition: The generally accepted definition of a penny crypto is a project whose token or coin value is below a dollar.
There are many good projects trading at under a dollar. As such, no one should get any negative connotations, just because their project falls under the penny cryptocurrencies category.
However, one should not be under any illusion that there are no risks involved when trading penny cryptocurrencies.
Crypto as a whole carries a lot of risk. However, it is in cryptos below a dollar that one finds lots of scam projects and meme tokens. They are priced this way to lure in investors who may not have lots of money to buy whole coins of Bitcoin, Ethereum, or any of the other top-tier cryptocurrencies.
That said, people have made money by investing in penny cryptocurrencies. All one has to do is apply the same investment philosophy they would to the bigger cryptos.
With the definitions out of the way, let’s tackle five steps an investor can follow, and become successful when investing in penny cryptocurrencies.
5 Tips For Making Money In Cheap Cryptocurrencies
Tip 1: Look at the circulating supply
No matter how good a project is the token or coin value potential is based on its supply.
Bitcoin is bitcoin mainly because of its relatively low supply. This means that demand is always chasing a very limited number of coins.
When it comes to penny cryptocurrencies, things can get a little murky. This is a market segment where you can find a project with trillions of tokens in circulation.
Can such projects grow in value? Sure they can. However, those are mostly random pumps that are more often than not followed by mega dumps.
To be safe while still profiting from penny cryptocurrencies, try and invest in those with a supply of between a billion and 20 billion coins or tokens. This is a viable range, where the supply is not too high to make any chances of value appreciation improbable.
Read Also: 9 Cryptocurrencies Under $2 That Could Be the Next Bitcoin
Tip 2: The number of coins or tokens yet to be mined
This is another significant factor to consider, not just for penny cryptos but also for any other cryptocurrency.
If the total amount of coins/tokens mined is less than 25% of the total supply, there would be no point in investing in such a project. That’s because new ones will keep entering the market and dilute the value of those already in existence. Since this can go on for years, you would be better off investing your money elsewhere.
As a rule, if you choose to go the penny crypto route, choose those that are 100% mined or are close to having all their total supply equal to the circulating supply.
Tip 3: Go for those listed on big exchanges
A good chunk of penny cryptocurrencies are scams. They are designed to lure in unsuspecting investors, then once the owners make money, investors are left holding worthless bags.
Some are so elaborate that you can’t distinguish them from real projects. Luckily, exchange listings is one of the filters you can apply, and protect yourself.
When investing in penny cryptos, try and focus on those listed on the big exchanges. There are two reasons that underpin this reasoning.
- Big exchanges have a reputation to maintain, and would not ruin it by playing host to exit scams.
- Regulators are always on the necks, and any fishy business can lead to prosecution.
Some of the exchanges where you can find legit penny cryptocurrencies are Binance, Coinbase, Huobi, and OKEx.
With the scam element out of the way, you can comfortably focus on the other aspects to choosing a good penny cryptocurrency.
Tip 4: Go for those with high liquidity ($1 million or more)
One of the biggest risks to penny cryptocurrency is price manipulation. This usually happens because the amount of money required to manipulate the market is low.
For instance, if the total volumes trading is less than $100k, it is very easy for anyone with less than $50k to bid up the price and create the illusion of rising demand. This can be used to lure in unsuspecting buyers into buying pumps and get dumped on by whales looking to exit the market.
To be on the safe side, go for penny stocks that are heavily traded across exchanges. It is not that they can’t be manipulated, but the risks are lower.
To lower the chances of being dumped on through basic price manipulation, go for those that have at least $1 million in daily trading volumes.
Closely related to daily trading volumes is market capitalization. Most penny cryptocurrencies have very small market caps. This makes them susceptible to price manipulation usually by those within the project, or by shady exchanges.
To lower the risk of such incidences, while also profiting from the potential that such cryptos hold, go for those with a market capitalization of over $20 million. It’s not much, but at least you are cushioned from the more blatant forms of market manipulation.
Check Out: 7 Promising And Cheap Cryptocurrencies To Invest In
Tip 5: Go for those with a strong social media presence
Bitcoin, Ethereum, Litecoin, and the likes may not need social media for them to grow in value.
However, when investing in a small project that not many people know about, then community hype matters. There are penny cryptos that have recorded 1000s of percentages in gains purely on social media hype.
Without a strong social media presence, you run the risk of holding crypto that though good, may never gain traction. Remember this market that has over five thousand cryptos all angling for visibility.
These five are just among the most important features to look out for when investing in penny cryptocurrencies. There are many others that you should give some serious thought to if you are to profit while keeping the risks at a minimum. Some of them are the developer team and the project road map.
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