Penny Crypto Investing: A Guide For Hawaiians

Penny cryptocurrencies are digital assets that are priced at under $1. They are often referred to as penny coins and are usually in the nascent stage of development. They are highly volatile and vulnerable to pump-and-dump schemes. However, their low price point and potential for explosive gains make them attractive to investors.

Hawaii has loosened its state-wide crypto restrictions, making it easier for Hawaiians to invest in penny cryptocurrencies. While there are over a dozen licensed and regulated exchanges in Hawaii, popular exchanges like Coinbase and Binance are not available in the state due to regulatory restrictions.

Some of the penny cryptocurrencies to consider investing in are Shiba Inu, Tron, Stellar Lumens, and Ravencoin. It is important to remember that investing in penny cryptocurrencies is risky, and thorough research is necessary before making any investment decisions.

Choosing a platform: Compare and sign up with a crypto exchange, considering factors like the number of coins supported, payment methods, and extra features

When choosing a platform to invest in penny cryptos in Hawaii, it's important to compare and sign up with a crypto exchange that suits your needs. Here are some factors to consider when selecting a platform:

• Number of coins supported: Different exchanges offer a varying number of cryptocurrencies. If you're interested in a wide range of crypto assets, look for an exchange with a large catalog of supported coins. For example, KuCoin supports over 600 cryptocurrencies, while Crypto.com supports more than 250.
• Supported payment methods: Consider the payment options available on the exchange. Some common methods include bank transfers, credit/debit cards, and crypto wallets. Uphold, for instance, allows funding via bank transfers, credit/debit cards, and crypto wallets.
• Extra features: Some exchanges offer additional features such as an NFT marketplace, earning hub, or advanced trading platforms. For instance, Crypto.com has an NFT marketplace, while Kraken offers Kraken Pro, an advanced trading platform with customizable interfaces and futures contracts.
• Fees: Different exchanges charge varying fees for trading, depositing, and withdrawing funds. These fees can impact your investment returns, so it's essential to compare the fee structures before choosing an exchange.
• Security: The safety of your investments is crucial. Evaluate the security measures implemented by the exchange to protect your assets. Look for features like two-factor authentication, encryption, and compliance with security standards.
• User experience: Consider the user-friendliness of the platform, especially if you're a beginner. Choose an exchange with a straightforward interface that makes it easy to navigate and execute trades.
• Customer support: Ensure that the exchange provides reliable customer support to assist you with any issues or queries.

By considering these factors and comparing different platforms, you can make an informed decision about which crypto exchange best suits your needs for investing in penny cryptos in Hawaii.

Regulatory considerations: Understand the regulatory landscape in Hawaii, including the Digital Currency Innovation Lab (DCIL) and money transmitter license requirements

Hawaii has a unique and evolving regulatory landscape for cryptocurrencies, and those looking to invest in penny cryptos in the state should be aware of the current situation.

The state's regulatory body, the Hawaii Department of Commerce and Consumer Affairs (DCCA), has been actively involved in shaping the crypto landscape. In June 2024, the DCCA announced the conclusion of its Digital Currency Innovation Lab (DCIL) program, which was a 2-year pilot program launched in August 2020 in partnership with the Hawaii Technology Development Corporation (HTDC) and the Hawaii Division of Financial Institutions (DFI). The DCIL allowed participating digital currency issuers to operate in Hawaii without obtaining a state money transmitter license, with the aim of fostering innovation and gathering data to inform future regulations.

The conclusion of the DCIL program led to a significant development in Hawaii's crypto regulation. The DCCA ruled that crypto companies would no longer require a Hawaii-issued Money Transmitter License (MTL) to conduct business within the state. This ruling means that crypto firms are now considered unregulated businesses in Hawaii, although they must still comply with any applicable federal licensing laws and regulations set by authorities such as the Financial Crimes Enforcement Network, the Securities and Exchange Commission, and the Financial Industry Regulatory Authority.

This exemption from the MTL requirement is a notable shift in Hawaii's crypto regulatory landscape, which previously posed challenges for crypto companies due to the significant investment and resources required to obtain an MTL license. The change brings Hawaii in line with other states that do not regulate cryptocurrency activity under pre-existing money transmission licensing regimes, such as Wyoming.

It is important to note that the regulatory climate for cryptocurrencies can vary from state to state, and Hawaii's current stance may evolve over time. Additionally, while the MTL requirement has been lifted, crypto companies must still adhere to federal licensing requirements and comply with Know Your Customer (KYC) and Anti-Money Laundering (AML) regulations.

Therefore, those looking to invest in penny cryptos in Hawaii should stay informed about the latest regulatory developments and ensure they understand the risks and compliance requirements associated with the evolving landscape.

Wallet options: Explore non-custodial crypto wallet options to secure your assets and ensure full ownership

When investing in penny cryptos in Hawaii, it's essential to consider your wallet options to secure your assets. Non-custodial crypto wallets are a popular choice as they give you full ownership and control over your private keys, reducing the risk of losing access to your funds. Here are some of the best non-custodial crypto wallets to consider:

• MetaMask: A well-known browser extension wallet that supports Ethereum and other EVM-compatible networks like Polygon and Arbitrum. MetaMask also has an in-built swap feature, allowing easy token exchanges.
• Electrum: A Bitcoin-focused non-custodial wallet with support for multi-signature and hardware wallets. It's one of the longest-standing hot wallets, having been founded in 2011.
• Phantom Wallet: The go-to non-custodial wallet for Solana users, offering a multi-purpose design, high performance, and a user-friendly interface. It's available as a browser extension and a mobile app.
• Trust Wallet: This open-source, decentralised wallet supports over 35 blockchains and thousands of digital assets. It offers in-built buy, swap, and exchange features, as well as dApp interactions.
• MyEtherWallet (MEW): A veteran Ethereum wallet that also supports other EVM-compatible networks like Polygon and the BNB Chain. MEW offers cross-chain swap capabilities and integration with decentralised exchange aggregators.
• Atomic Wallet: A non-custodial wallet supporting multiple networks, including Ethereum, Solana, and Avalanche. It provides access to various decentralised applications and an in-house swap function.
• Coinomi: One of the oldest non-custodial wallets, supporting around 125 networks and over 1,770 digital assets. Coinomi offers direct access to dApps, Web3 projects, an in-house exchange, and token swaps.
• Exodus: A multi-currency, user-friendly non-custodial wallet supporting over 130 cryptocurrencies. Exodus also provides a risk-free way to earn money off your crypto by giving you a percentage of crypto-to-crypto profits.
• Coinbase Wallet: A user-friendly self-custody wallet that supports Ethereum, Solana, and other EVM-compatible blockchains. It offers a mobile app and can be connected to a Coinbase custodial account for easy asset transfers.
• Hardware Wallets: Cold wallets, such as the Trezor Safe 3 and Ledger Nano X/S, provide enhanced security by storing your private keys offline. They support a wide range of cryptocurrencies and are ideal for long-term storage.

When choosing a non-custodial wallet, consider your level of expertise, desired features (like swap functions or dApp browsers), and the type of cryptocurrencies you plan to invest in. Remember, with non-custodial wallets, you're solely responsible for safeguarding your private keys, so always prioritise security.

Risk assessment: Evaluate the risks associated with penny cryptos, including price volatility, limited liquidity, and potential pump-and-dump schemes

Penny cryptos are a risky investment due to their high volatility, low liquidity, and susceptibility to pump-and-dump schemes.

Penny cryptos are young cryptocurrencies with a low market value, usually costing under $1. They are more volatile than prominent cryptocurrencies, and their low prices make them attractive to investors seeking high returns with a small initial investment. However, this volatility can lead to swift and significant losses.

Penny cryptos also have limited liquidity, which means that even small buy or sell orders can significantly impact their prices. This low liquidity also makes it difficult to buy or sell large amounts of the cryptocurrency without influencing the market price.

Additionally, penny cryptos are particularly vulnerable to pump-and-dump schemes. In a pump-and-dump scheme, individuals or groups collude to inflate the price of a cryptocurrency by spreading misleading positive news. Once the price reaches a certain point, the organizers of the scheme sell their holdings, causing the price to crash and leaving other investors with losses. The lack of regulation in the cryptocurrency market makes it easy for pump-and-dump schemes to be carried out and hard for authorities to enforce existing laws.

To mitigate these risks, investors should conduct thorough research before investing in penny cryptos. This includes analyzing the cryptocurrency's claims, roadmap, trading patterns, and white paper. It is also important to consider the market capitalization, liquidity, development team, and technology of the cryptocurrency.

Investment strategy: Develop a strategy that aligns with your risk tolerance, investment goals, and market research

Investing in penny cryptocurrencies is a high-risk strategy due to their low price, volatility, and limited liquidity. However, the potential for substantial growth makes them appealing to investors. Here are some key considerations for developing an investment strategy for penny cryptos in Hawaii:

• Risk Tolerance: Penny cryptos are highly speculative and carry a high risk of losing your entire investment. Ensure you are comfortable with the level of risk and only invest what you can afford to lose.
• Investment Goals: Understand your investment goals and time horizon. Are you seeking short-term speculative gains or long-term growth? Penny cryptos can offer both, but it's important to define your objectives.
• Market Research: Conduct thorough research on the projects behind penny cryptos. Evaluate factors such as market capitalization, liquidity, project fundamentals, development team, community support, real-world use cases, volatility, regulatory environment, technology, and security.
• Diversification: Diversifying your crypto portfolio can help manage risk. Consider investing in a range of penny cryptos rather than putting all your funds into a single coin. This can provide exposure to different sectors, such as DeFi, NFTs, and blockchain gaming.
• Exchange Availability: Not all penny cryptos are available on major exchanges like Coinbase and Kraken. Ensure the coins you're interested in can be purchased and traded on reputable exchanges that offer good security measures and liquidity.
• Technical Analysis: While penny cryptos may have limited price history, study their price charts and try to identify patterns and trends that can inform your entry and exit points.
• Fundamental Analysis: Assess the health and growth potential of the projects behind the penny cryptos. Look for strong development teams, active communities, innovative technology, and real-world use cases.
• Risk Management: Implement risk management strategies such as setting stop-loss orders and taking profits at regular intervals. Consider allocating only a small portion of your portfolio to penny cryptos to manage risk effectively.
• Stay Informed: Stay updated with news, developments, and market trends related to penny cryptos. Join crypto communities, follow industry influencers, and utilize reliable sources to make informed investment decisions.
• Long-Term Potential: Some penny cryptos may offer long-term growth potential due to their innovative technology or strong community support. Evaluate projects that have a clear roadmap, dedicated development team, and a growing user base.
• Regulatory Environment: The regulatory landscape for cryptocurrencies is evolving, and changes can significantly impact prices. Stay informed about any regulatory developments in Hawaii and the US that may affect your investments.
• Tax Implications: Understand the tax implications of investing in penny cryptos in Hawaii. Consult with a tax professional to ensure you are compliant with reporting and paying any necessary taxes on your crypto investments.

Frequently asked questions