re all penny cryptocurrencies a scam?
The short answer is no. Penny cryptocurrencies that sell for under $1 might appear shady to amateur investors. However, some of these coins are extremely popular and are used to diversify a risky portfolio. In order to alleviate this misconception that all penny cryptocurrencies are inherently risky and scams, we need to understand what actually drives a digital currency’s price and analyze the actual project behind the coin.
What Drives the Crypto Price?
With any type of investment (real estate, fiat currencies, stocks, etc.) the main thing that drives the price is demand. Does that mean the demand for a penny cryptocurrency is low? No. Because another important factor that determines the price of an investment is supply. Let us analyze a few factors that lead to a low cryptocurrency price:
- High Circulating Supply – If a coin has a huge supply, its price is kept low. For example, Ripple has a circulating supply of 39 billion coins, while Bitcoin has a circulating supply of 17 million. This is why Ripple sells below $1 USD and Bitcoin has a price above $8,000.
- It’s a New Coin – A cryptocurrency that is newly created has penny status because nobody knows about it yet. If you find a new coin that shows great potential, it could be worth the investment.
- From High to Low Price – A penny coin that used to have an expensive price but took a quick plunge will generally not recover. One would need extreme confidence to invest in that type of coin again.
- Slow and Steady Price Climb – Cryptocurrencies that have been on the market for a significant amount of time but have shown no progress will generally never change because these projects lack appeal and creativity. In rare instances, a cryptocurrency is creative but requires time before breaking out.
Cryptocurrencies Worth Investing In Under $1
As shown above, there are many reasons why a cryptocurerncy sells for under $1 USD, so sometimes it’s important to look at the actual project behind the coin. Is the coin solving a real life issue or a fabricated issue that does not matter? Is the team behind the project capable of delivering on all its promises?
It’s not always easy to sort out the good penny coins from the bad ones as the future is really hard to predict. But in general, the best penny coins to purchase at any given time are the ones with the largest market capitalization.
Ripple is an open source, blockchain-based network primarily created for banks. The Ripple Transaction Protocol (RTXP) allows the transmission of any currency and takes 3.6 seconds to complete. Ripple streamlines international money transfer and offers much lower transaction fees than banks. Ripple has partnered with many notable financial companies such as MoneyGram, American Express, Western Union, Santander, IDT, and Mercury FX.
Ripple is currently the third largest cryptocurrency based on market cap following Bitcoin and Ethereum. It’s circulating supply is 39,262,097,329 XRP which is way more than Bitcoin’s 17M BTC.
2. Cardano (ADA)
Cardano has the 7th largest market cap and is the 2nd largest penny coin in the market today. The coin officially released in 2015, but has only just been accepted by the market since 2017. Cardano’s platform is like Bitcoin in that it offers a peer-to-peer payment platform and also similar to Ethereum through the creation of decentralized apps and smart contracts. However, Cardano differentiates itself by using a different algorithm for mining which is based on the PoS (proof-of-stake) method called Ouroboros. It is said to be a better remedy to the scalability issues Bitcoin and Ethereum are facing. Cardano has a circulating supply of 25,927,070,538 ADA. Though priced at $0.31 USD, Cardano’s development team, IOHK (Input Output Hong Kong), have publically announced an extensive, methodical process of growing its coin price. This makes Cardano a long-term project and suitable only for investors with long-term investment horizons.
3. Stellar (XLM)
Stellar and Ripple serve the same purpose except Stellar was made for individuals and Ripple was for banks. Stellar enables instantaneous money transfers between individuals anywhere in the world and charges much low transaction fees compared to traditional bank transfers. The coin is ranked 8th in terms of market cap and has a massive circulating supply of 18,576,114,898 XLM. Stellar has partnered with IBM to facilitate cross-country payments between South Pacific nations such as New Zealand, Australia, Fiji, Tonga and Samoa. The Stellar Consensus Protocol uses the Federated Byzantine Algorithm (FBA) which does not require miners to validate transactions.
4. Tron (TRX)
Tron is relatively new to the cryptocurrency industry. The company aims to decentralize content-sharing on the Internet, with a focus on entertainment and media content. Tron’s content management platform enables content owners to add controls to their creation for any purpose they choose including distribution, subscription, release, circulation, or storage. This blockchain can handle 1000 transactions per second with almost zero transaction fees. Tron’s circulating supply today is 65,748,111,645 TRX, the largest among these four penny cryptocurrencies.
Don’t Fear to Miss Out
When investing in cryptos under $1 (or any cryptocurrencies for that matter), make sure that your decision is based on the future potential of the coin and the development team behind it, not just on the hype it’s getting.
It’s your responsibility to find out as much about these projects as possible before investing your hard-earned money in them. Don’t get sucked into the trend or as some people say FOMO (fear of missing out). Don’t buy into something just because everyone else is talking about it, chances are all these people have already invested in the project and will not help to drive the price.
Do You Have What it Takes?
Penny cryptocurrencies may not be for you if you want to make a huge investment and expect a return right away. Dealing with penny cryptocurrencies require perseverance, stamina, patience and a keen understanding of the crypto market. If you understand the speculative nature of penny cryptocurrencies, and have a long-term investment horizon, you might do well in these types of investments.
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