What is a Penny Cryptocurrency?
Penny cryptocurrencies, also known as micro-cap coins, are digital assets with prices that are typically less than one dollar.
The big deal about penny cryptocurrencies is that these coins can offer investors unique opportunities to make large gains–anything from 50X to 1,000X gains or more, if investors are able to identify the right coins at the right time.
Nowadays, you are unlikely to see these sorts of gains with any of the big established cryptos that rank in the top 20 by market cap, including Bitcoin and Ethereum, which were once penny cryptos themselves.
At the same time, penny cryptos come with higher risks due to their low liquidity and lower trading volumes, as well as lack of track record.
As such, penny cryptocurrency investments should be made with caution as there is a greater risk of losing all your money.
Is Crypto Like Penny Stocks?
Penny cryptocurrencies are similar to penny stocks, in that they are both investment assets with prices typically lower than one dollar. Like penny stock investments, penny cryptocurrency investments involve a high degree of risk and can provide investors with the potential for significant gains.
However, unlike penny stocks which trade on traditional exchanges, penny cryptocurrencies are digital assets that trade on cryptocurrency exchanges. As such, the process for investing in penny cryptocurrencies is different from that of investing in penny stocks.
How to Choose Penny Crypto to Buy? A 5-Point Checklist
Penny cryptos are like startups–untested and still finding their place in the market. In the traditional, regulated financial markets, these are the companies pitching to venture capital firms for funds, and the VCs that invest in the right start-ups stand to earn plum hundredfold returns. Normal retail investors do not get the opportunity to invest into these startups, as they are high-risk.
In crypto, however, there are no regulations to prevent retail investors from seizing similar opportunities and investing in such startups. But this regulation-free market is a double-edged sword–it also does not protect them from scams. As such, the onus is completely on the investor to do their own research i.e. DYOR.
Here is a checklist before you decide on buying penny cryptos:
- Commercial soundness
Sure, it may be “blockchain-based” but does the project solve an actual user problem? This speaks to the utility value of the cryptocurrency–if a crypto does not solve a problem, nobody will want it. If there is no buy pressure, prices will not increase (this is a tricky one–some will say meme coins have no utility value but the two biggest ones have returned life-changing gains for investors).
This business use case should be immediately obvious and clearly stated on the project’s official website.
- Technological innovation
Next–the project can promise to change the world and solve a valid problem, but can it deliver? To ascertain this, look at the crypto’s white paper, which will detail the project’s technological architecture.
The white paper will also give you an idea of the developers’ vision and roadmap i.e. long-term plans for the project. Without a clear vision, there will be no growth.
(Tip: if the white paper is poorly written and riddled with grammatical errors or typos, that’s a huge red flag).
Large-cap cryptocurrencies are generally considered to be safe crypto investments. For penny/low-cap crypto, try to go for those with a market cap of at least $20 million. Remember, the smaller the market cap, the more vulnerable it is to market volatility.
Check if it is listed on the leading crypto exchanges, both centralized and decentralized. If it is not widely listed, it will affect the coin’s liquidity–the more liquid a coin is, the easier it is for you to sell it and take profits.
On the same note, check that the coin has a 24-hour trading volume of at least $1 million.
- Team Credibility
Who are the founders and developers? Are they established professionals in the market? One can argue that this piece of information is missing from the biggest crypto of all, Bitcoin–but that’s because it is the only 100% decentralized crypto in the world, and Bitcoin has grown to such a point that a rug-pull is near impossible to pull off.
Check that the project has an engaged, thriving community–and by this we do not just mean social media followers, but the ecosystem i.e. is it partnered with other projects? Is it growing?
Investing and Trading Penny Cryptos: How the Game is Played
There are 2 main ways investors play the game in penny cryptos:
Long-term: Some investors will buy and hold for a year or longer, ignoring the periodic volatility. Given the risk (and reward) factor, this class of penny crypto will constitute the smallest percentage of their crypto portfolios–sometimes even just $1,000, as compared to say, Bitcoin, Ethereum or other large-cap cryptos. If it goes to zero, the investor loses a maximum of just $1,000; if it moons, there will be yet another newly minted crypto bro.
Short/mid-term: Investors with this sort of investment horizon for crypto will wait in the shadows for the price to go “parabolic” then sell off. A parabolic move in crypto is a rapid and unsustainable surge in asset prices. This phenomenon is typically caused by large players entering the market and buying up large amounts of assets, causing prices to rapidly increase over a short period of time. Parabolic moves can occur both to the upside and downside, with prices quickly reversing after reaching its peak or trough.
Parabolic moves can be risky for investors, as prices can quickly reverse and cause large losses if not managed properly. Therefore, it is important to exercise caution when investing in assets that are experiencing parabolic moves–ideally, you’d want to buy in before it moves up, not during, and definitely not when it’s at an all-time high. Don’t give in to the FOMO.
Further reading: PSAR: How to Use Parabolic SAR in Crypto Trading?
Do Penny Cryptos Correlate Heavily with Bitcoin?
Bitcoin is the crypto world’s reserve currency. In addition, as the most trusted cryptocurrency, its movements affect the market, meaning it also affects the penny crypto price. A Bitcoin price drop usually causes a price drop in other assets. However, there are instances where coins have risen while Bitcoin’s value dropped.
The most recent example–while Bitcoin was trading at the $20,000 range end Oct/early Nov, DOGE posted a gain of almost 30% within a day when Elon Musk tweeted this on 1 Nov 2022:
On a weekly timeframe, Dogecoin gained 159%, even though it was down about 80% from its peak of $0.73 in May 2021.
Dogecoin 3-month price history (Source: Coinmarketcap)
Top 8 Best Penny Crypto to Invest (2023 Guide)
Cardano, the Ethereum killer, is building an enabling network for decentralized apps (DApps) and services. Cardano attracts developers and investors to create real-world services on a cheaper, faster blockchain. For instance, Cardano is being used to build decentralized exchanges and create digital identities for 5 million students in Ethiopia. According to CryptoRank and Santiment, Cardano became the most developed blockchain on Github in 2021.
2) Basic Attention Token (BAT)
Basic Attention Token (BAT) is improving the internet experience by streamlining how advertisers reach users. Traditional internet models allow random ads to reach users when browsing, which creates poor user experience. The Brave Browser replaces random ads with private ads, which users can choose to view. Users who view private ads are rewarded with BAT. The result is that publishers can create more tailored content while users control their online privacy. As of 2022, the Brave browser has more than 50 million users.
3) Vechain (VET)
Vechain helps monitor and control enterprise supply chains, identify food fraud, cut waste and improve productivity. The project is currently worth $1.6 billion, and with the importance of supply chains across the world, its growth could be huge. It is definitely one of the industry leaders in blockchain-powered supply chain management.
4) Metahero (HERO)
Metahero is a real-world bridge to the virtual world. Metahero uses advanced 3D scanning technology to create avatars of humans, animals, and objects. Users can deploy these avatars in the metaverse. Metahero could become more valuable as virtual reality games continue to increase. As of 2022, the global metaverse market is worth $61 billion.
5) The Sand Box (SAND)
Sandbox is a metaverse gaming network that allows users to create, share and sell gaming experiences. Sandbox is one of the largest independent user-generated content platforms, with over 40 million downloads and more than one million monthly active users. With SAND, users can create and sell unique games. As of 2022, Sandbox has more than 2 million registered users.
6) The Graph (GRT)
The Graph (GRT) helps collect and deploy blockchain data —data that is key for investing in cryptocurrencies and digital assets, as making solid decisions requires a lot of knowledge. In addition, the constantly changing nature of the crypto market demands that investors find a way to stay updated with the latest developments. GRT provides information used by exchanges, DeFi protocols, developers, and investors.
7) Polygon (MATIC)
Polygon is a layer-2 scaling solution built for Ethereum, which has the most applications and services of any blockchain. Polygon is designed to make transaction processing faster, thus boosting the network speed of Ethereum DApps.
Polygon uses side-chain technology to process batches of transactions off-chain before returning the data to the network. Polygon has seen rapid growth since its launch, but many expect it to become more valuable, especially after Ethereum’s switch to Proof of Stake (PoS) with the Ethereum merge, which cuts down its energy use by 99%. Polygon has over 2 million monthly users and has completed over a billion transactions. Many expect the number of DApps on Ethereum to double in the coming years, thus increasing demand for scaling solutions like Polygon.
8) Chiliz (CHZ)
Chiliz (CHZ) is a digital asset based on the Ethereum blockchain that powers an ecosystem of sports and entertainment projects. The Chiliz token was created to revolutionize the world of sports by allowing fans to interact with their favorite teams in meaningful ways. Fans can use CHZ tokens to access exclusive team merchandise, participate in fan engagement activities, and even vote on team decisions. It’s like traditional sports cards–but in digital form.
Chiliz has partnered with not just popular soccer teams, including Man City and PSG, but car racing teams like Aston Martin Cognizant and Alfa Romeo Racing.
Which penny crypto will reach $1?
Of all penny cryptos, many analysts believe that Polygon (MATIC) has a strong potential of reaching $1. The coin’s current price is $0.80. Many expect Polygon’s value to rise as Ethereum’s adoption increases, thanks to the ETH Merge. This is because the Merge will boost Ethereum’s energy efficiency, thus encouraging more developers to use the network. As Ethereum’s use increases, so will demand for Layer-2 scaling solutions like Polygon.
Where to buy penny crypto?
The best place to buy penny cryptos is on popular crypto exchanges like Phemex, or decentralized exchanges like Uniswap. You will need a cold or hot wallet before purchasing any new penny cryptocurrency.
Risks of Investing in Penny Crypto
As penny cryptos are basically very young or untested assets, some of these could be scams or pump-and-dump schemes.
Pump-and-dumps are crypto projects with no real value or utility which rely on FOMO to encourage unsuspecting investors to buy. Once the coin’s value reaches a certain threshold, the project’s owners sell their shares, causing a price crash that makes the project worthless.
The best example of this was the Squid token of early 2022 that saw the developer team disappear with over $3 million.
Penny cryptocurrency investments are not for the faint of heart and should only be undertaken by experienced investors.
As always, proper risk management is essential; setting realistic goals and investing within your own comfort zone are important considerations when trading penny cryptocurrencies. Every investor should also remember to diversify their portfolio in order to reduce the risk of a total loss due to market volatility.
Finally, it is important to remember that all investments carry some degree of risk and no one can guarantee success in any market. Therefore, proper research and due diligence are essential when looking to invest in penny cryptocurrencies.