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Follow these five rules for trading cheap penny cryptocurrencies, and you’ll greatly improve your chances.
As with penny stocks, it is possible to make money in penny stocks cryptocurrencies. However, before delving into tips on how to make money from cheap cryptocurrencies, it is important to understand what penny stock cryptocurrencies are.
Getting it right is important because of the strong emotions that accompany crypto.
Because of the high risk inherent in cheap stocks, some people may be offended when a project they own and believe in so deeply is characterized as a “penny stock cryptocurrency.
What is a penny stock cryptocurrency
Definition: the generally accepted definition of a penny cryptocurrency is a project whose token or coin value is below a dollar.
There are many good projects trading for less than a dollar. Thus, no one should get any negative connotations just because their project falls into the category of cheap cryptocurrencies.
However, one should not be under the illusion that there are no risks when trading penny cryptocurrencies.
Crypto in general carries a lot of risk. Nevertheless, it is in cryptocurrencies below the dollar that many fraudulent projects and meme tokens can be found.
They are priced in such a way as to attract investors who may not have much money to buy whole Bitcoins, Ethereum, or any other top-tier cryptocurrency.
Nevertheless, people have been making money investing in penny-pinching cryptocurrencies. All you have to do is apply the same investment philosophy to larger cryptocurrencies.
Definitions aside, let’s take a look at the five steps an investor can follow and achieve success by investing in penny stock cryptocurrencies.
5 tips for making money from cheap cryptocurrencies
Tip 1: Look at the circulating power supply
No matter how good a project is, the potential value of a token or coin depends on its supply.
Bitcoin is a 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 stock 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 rise in value? Of course, they can. However, they are mostly occasional “pumps” followed most often by mega-dumps.
To be safe while continuing to profit from penny stock cryptocurrencies, try investing in those that have a supply of a billion to 20 billion coins or tokens.
This is a viable assortment where the supply is not too large to make any chance of appreciation unlikely.
Tip 2: Number of coins or tokens still to be mined
This is another important factor to consider not only for cheap cryptocurrency but also for any other cryptocurrency.
If the total number of mined coins/tokens is less than 25% of the total supply, there would be no point in investing in such a project.
This is because new ones will continue to appear on the market and reduce the value of existing ones. Since this can go on for years, you would be better off investing your money elsewhere.
As a rule of thumb, if you decide to go the penny stock cryptocurrency route, choose the ones that are 100% mined or close to having their entire total stock equal to the circulating stock.
Tip 3: Choose ones that are listed on major exchanges
Most penny-stock cryptocurrencies are scams. They are designed to lure unsuspecting investors, and then once the owners make money, investors are left with useless bags.
Some of them are so sophisticated that it’s impossible to distinguish them from real projects. Fortunately, exchange listings are one filter you can apply and protect yourself.
When investing in cheap cryptocurrencies, try to focus on those listed on major exchanges.
There are two reasons behind this reasoning:
- Large exchanges have a reputation to uphold, and they won’t ruin it by hosting scammers.
- Regulators are always hanging on their necks, and any suspicious case can lead to prosecution.
Some of the exchanges where you can find legitimate penny stock cryptocurrencies are Binance, Coinbase, Huobi, and OKEx.
By removing the element of fraud, you can comfortably focus on the other aspects of choosing a good cryptocurrency.
Tip 4: Choose those with high liquidity ($1 million or more)
One of the biggest risks to cryptocurrency is price manipulation. This is usually because the amount of money needed to manipulate the market is small.
For example, if the total bidding volume is less than $100,000, it is very easy for anyone with less than $50,000 to raise the price and create the illusion of increasing demand.
This can be used to lure unsuspecting buyers into buying and being dumped by whales looking to exit the market.
Just in case, choose penny cryptocurrencies that are actively traded on exchanges. It’s not that they can’t be manipulated, but the risks are lower.
To reduce the chances of being duped by elementary price manipulation, choose those that have a daily trading volume of at least $1 million.
Market capitalization is closely related to daily trading volumes. Most penny stock cryptocurrencies have a very small market capitalization.
This makes them susceptible to price manipulation, usually by those involved or by shadow exchanges.
To reduce the risk of such incidents, and to benefit from the potential that such cryptocurrencies have, choose those with a market capitalization of more than $20 million.
That’s not much, but at least you are protected from more egregious forms of market manipulation.
Tip 5: Choose cryptocurrencies that have a strong social media presence
Bitcoin, Ethereum, Litecoin, and the like may not need social media for their value to rise.
However, when investing in a small project that few people know about, the hype in the community matters.
There are penny stock cryptocurrencies that have recorded 1,000 percent returns solely due to social media advertising.
Without a strong social media presence, you run the risk of owning a cryptocurrency that, while good, may never gain traction. Be aware of this market, with over ten thousand cryptocurrencies striving for visibility.
These five are just some of the most important features to look out for when investing in penny stock cryptocurrencies.
There are many other things you should seriously think about if you want to make a profit while minimizing risks. Some of them are the development team and the project roadmap.