Penny Crypto Investing: A Beginner's Guide To Getting Started

Penny cryptocurrencies are a risky but potentially rewarding investment option. They are digital assets that can be bought and sold for less than a dollar, similar to penny stocks. While some people might view them as scams or guarantee high returns, this is not always the case. Penny cryptos can be categorised into three types: new cryptocurrencies, stagnant cryptocurrencies, and crashing cryptocurrencies.

New cryptocurrencies are usually priced very low and their success depends on their ICO (initial coin offering) and usefulness. Stagnant cryptocurrencies have been in the market for a while but their price doesn't fluctuate, which could indicate a loss of interest or developers slowly abandoning the project. Crashing cryptocurrencies are those whose prices are decreasing, which could be due to a wider crash in the crypto market.

Investing in penny cryptocurrencies carries a higher risk due to their low price, increased volatility, and limited liquidity. They are also more susceptible to pump-and-dump schemes, where their prices are artificially inflated through misleading information.

However, penny cryptos are appealing to investors because of their potential for significant returns and low prices. When choosing which penny cryptos to invest in, it is important to consider factors such as market capitalization, liquidity, the development team, and the technology and use case of the cryptocurrency.

How to identify good penny cryptos

When it comes to investing in penny cryptocurrencies, it is important to remember that they carry a higher level of risk due to their low price, increased volatility, and limited liquidity. However, their potential for high returns makes them appealing to investors. Here are some factors to consider when identifying good penny cryptos:

• Market Capitalization and Liquidity: Look for penny cryptos with a reasonable market capitalization, as a higher market cap indicates more stability and potential for long-term growth. Ensure that the cryptocurrency is adequately traded on exchanges, as higher liquidity allows for quick buying and selling without significantly impacting the market price.
• Development Team and Community Support: A competent and expert development team increases the chances of successful project execution and continued growth. An active and engaged community promotes the project through discussions and social media channels and contributes to its development through activities like testing and feedback.
• Technology and Use Case: Analyze the underlying technology and specific use case of the cryptocurrency. Look for projects with practical and innovative applications that can solve real-world problems.
• Volatility and Price History: Penny cryptos can be highly volatile, with even small buy or sell orders potentially causing significant price fluctuations. Review their price history to understand past performance and potential future trends.
• Regulatory Environment: Stay informed about regulatory changes that could impact cryptocurrency prices.
• Risk Assessment: Be aware of the risks involved, including the possibility of losing your entire investment. Penny cryptos can be more speculative and risky compared to more established coins.
• Diversification: Diversify your crypto portfolio to manage risk. Don't put all your funds into a single penny cryptocurrency.
• News and Developments: Stay updated with news and developments related to the cryptocurrencies you're interested in, as these can impact their prices and long-term viability.
• Stellar (XLM): Stellar is a leading penny crypto that aims to facilitate efficient cross-border transactions and simplify global payments. It has processed billions of operations since its launch in 2015.
• Shiba Inu (SHIB): A meme cryptocurrency that has gained significant popularity, with a passionate community supporting it.
• Dogecoin (DOGE): Initially created as a meme coin, Dogecoin has grown into a widely recognized cryptocurrency with a high-spirited community. It is now accepted as a payment method by many companies.
• Tron (TRX): Tron aims to create a decentralized content creation and entertainment platform, giving creators ownership of their content and authorizing direct consumer interactions.
• Telcoin (TEL): Telcoin aims to bridge the gap between cryptocurrency and telecommunications, enabling fast, affordable remittances, and international money transfers.
• Ripple (XRP): Ripple is said to be one of the most popular penny cryptos, reaching an all-time high price of $3.84 in 2018. It has left Bitcoin behind in transaction throughput, processing over 1500 transactions per second.

Remember, investing in penny cryptocurrencies requires thorough research and a careful assessment of your risk tolerance.

How to buy penny cryptos

Penny cryptos are a risky but potentially rewarding investment option. They are characterised by their low market value, usually costing under $1.

Before investing in penny cryptos, it's important to understand the different types available:

• New cryptocurrencies: These are cryptos that have recently been released, often with a super low market price. Their success depends on their ICO (initial coin offering) and whether they are seen as useful.
• Stagnant cryptocurrencies: These cryptos have been on the market for a while but their price hasn't fluctuated. This could be due to corporate interference, a loss of interest, or a pause in trading.
• Crashing cryptocurrencies: These cryptos are experiencing a significant decrease in price, which could be due to a wider crash in the crypto market.

When choosing which penny cryptos to invest in, there are several factors to consider:

• Market capitalisation: Look for cryptos with a reasonable market cap, as this indicates more stability and potential for long-term growth.
• Liquidity: Ensure the crypto is traded on exchanges with high liquidity, allowing for quick buying and selling without impacting the market price.
• Development team: A competent and expert team increases the chances of successful project execution and growth.
• Technology and use case: Analyse the underlying technology and specific use case. Look for cryptos with practical and innovative applications that solve real-world problems.

It's also important to remember that investing in penny cryptos carries a higher risk due to their low price, increased volatility, and limited liquidity. They are also more vulnerable to pump-and-dump schemes, so vigilance and due diligence are essential.

• Do your research: Read whitepapers, follow news and developments, and assess whether the crypto fills a need or serves a specific purpose.
• Choose an exchange: Compare security measures, fees, and available trading pairs before selecting a reputable and secure crypto exchange that offers a wide range of penny cryptos.
• Create an account: Sign up on your chosen exchange, complete any required KYC processes, and deposit funds into your account.
• Buy the desired penny crypto: Use the funds in your account to purchase the penny crypto you have researched and selected.
• Store your crypto securely: Consider using a crypto wallet, such as MetaMask, to store your penny crypto holdings safely and access decentralised applications.

Remember that investing in penny cryptos is a risky endeavour and it's recommended to consult a professional before making any investment decisions. Only invest what you can afford to lose and be prepared for potential losses.

Pros and cons of investing in penny cryptos

Penny cryptos are a tempting proposition for investors, given their low entry price. However, it's important to weigh the pros and cons before investing in this highly volatile asset class.

Pros

• Lower Barrier to Entry: Penny cryptos allow investors to get started with small amounts of capital. This makes them more accessible than established cryptocurrencies, which often have much higher prices per coin.
• Potential for Explosive Growth: Penny cryptos have the potential for massive price increases. For example, Dogecoin, a meme coin, saw a surge of over 17,000% in 2021, driven by social media hype and celebrity endorsements.
• Early Adopter Advantage: Investing in penny cryptos allows you to get in on the ground floor of potentially groundbreaking projects. If the project succeeds, you could see significant returns.

Cons

• High Risk: Penny cryptos are highly speculative and carry a high risk of losing your entire investment. Many of these projects are in the early stages of development and have not established a clear purpose or utility beyond speculation.
• Unpredictable Pricing: The prices of penny cryptos can be difficult to predict due to limited information, infrequent trading, and the potential for fraudulent activities.
• Low Liquidity: Penny cryptos may have low trading volumes, making it challenging for investors to buy or sell. This lack of liquidity can also make it difficult to pull out funds.
• Scams and Manipulation: Due to their low prices and low trading volumes, penny cryptos can be attractive to scammers aiming to manipulate prices. Investors may lose significant amounts of money due to price manipulation.

How to mitigate the risks of investing in penny cryptos

Penny cryptocurrencies are a risky investment, but there are some ways to mitigate these risks. Here are some strategies to consider:

• Diversify your portfolio: Instead of putting all your money into one penny crypto, spread your investment across multiple options. This way, if one coin performs poorly, you have others that may balance out your portfolio.
• Do your research: Thoroughly research the penny cryptos you're considering. Look into the development team, the technology and use case, market capitalization, liquidity, and real-world adoption. The more you know about a project, the better you can assess its potential risks and rewards.
• Buy in small amounts: Penny cryptos are highly volatile, and there's a high risk of losing your investment. To manage this risk, invest small amounts that you can afford to lose. This way, you can gain exposure to the potential upside while limiting your downside.
• Be cautious of scams: The penny crypto market is prone to pump-and-dump schemes and other fraudulent activities. Be vigilant, exercise due diligence, and be wary of misleading information. Only invest in projects with transparent and credible teams and a strong community.
• Monitor market trends: Stay updated with news and developments in the penny crypto space. Keep track of market trends, technological innovations, and community interest. This will help you make more informed investment decisions.
• Consider long-term potential: While penny cryptos are often associated with short-term trades, consider the long-term potential of the project. Look for cryptos with solid fundamentals, innovative technology, and a dedicated community, as these factors can indicate sustained growth.
• Choose reputable exchanges: When buying penny cryptos, use well-known and secure cryptocurrency exchanges. Compare the security measures, fees, and available trading pairs before selecting an exchange. A reputable exchange will help protect your investment and provide a safer trading environment.
• Understand the risks: Penny cryptos are high-risk investments. Assess your risk tolerance and ensure you fully understand the potential downsides before investing. Be prepared for price volatility and the possibility of losing your entire investment.
• Set exit strategies: Given the volatile nature of penny cryptos, it's essential to have a plan for when to sell. Decide on your profit targets and stop losses before investing. This will help you make rational decisions and avoid getting caught up in the excitement or panic of the market.
• Combine with more stable investments: Consider balancing your penny crypto investments with more stable and established cryptocurrencies. This can provide a level of stability to your portfolio and reduce the overall risk.

Long-term vs short-term investing in penny cryptos

Penny cryptocurrencies are a particularly attractive investment for those with a high-risk tolerance, as they are much less stable than blue-chip cryptocurrencies like Ethereum and Bitcoin. While they offer huge profitability potential, you should only invest what you are willing to lose.

When it comes to investing in penny cryptocurrencies, there are two main approaches: long-term and short-term investing.

Long-term Investing

Long-term investors typically hold onto their assets for several months or years. They believe in the technology and potential of the digital asset they are investing in and are less focused on short-term market movements. This strategy suits those who want to invest in the technology's potential and are willing to wait for returns over a longer period. It also allows investors to be in a more peaceful state of mind as they don't need to monitor price fluctuations daily. However, the downside is that investors may have to endure extended periods of drawdowns and crypto winters, sometimes seeing losses of 70-80% of their cost price values.

Short-term Investing

Short-term investors, also known as traders, buy and sell digital assets within a short period, often within hours or days. They are driven by market fluctuations and aim to make quick profits. This strategy suits those who prefer higher risk and seek immediate returns. Short-term investors can also prevent themselves from experiencing extreme drawdowns in the crypto market by setting strategic stop losses. However, short-term trading requires a frequent time commitment to monitor charts and tickers and typically involves higher transaction costs.

Both long-term and short-term investing strategies can be successful, and the choice depends on your risk tolerance, investment horizon, and goals.

Frequently asked questions