The search for cheap cryptocurrencies that might explode in the coming year is gaining momentum. What factors drive this interest, and could this approach prove fruitful?
The collapse of several major crypto firms, including FTX, Celsius Digital, BlockFi, and Genesis Global, dampened the appetite for crypto investments in the last couple of years. However, a recent upturn in the crypto market, spearheaded by the impending approval of spot Bitcoin exchange-traded funds (ETFs), has reignited interest in digital assets.
However, many would-be investors are not just looking at leading cryptos like Bitcoin (BTC) and Ethereum (ETH), especially given that their prices may be beyond the reach of many. There’s a growing trend of crypto enthusiasts trying to discover cheap cryptocurrencies, often referred to as ‘penny cryptocurrencies’.
The allure of such investments lies in their potential for exponential growth. For instance, if a cryptocurrency is priced at $0.01 and it rises to just $1.00, that would represent a 100x return on investment (ROI).
Of course, it is not an exact science, and given crypto’s inherently volatile nature, finding cheap cryptocurrencies that will explode is an exercise fraught with risks.
With that in mind, let’s delve into the factors that surround the desire to find cheap coins and how such an approach could be beneficial to investors, especially with the market showing signs of an upcoming bull run.
Reasons for investing in cheap cryptocurrencies
The main reason for investing in cheap coins is the potential for high returns. As mentioned above, even a small increase in price can lead to substantial profits.
Such an approach may be particularly appealing to investors with a high tolerance for risk who would be willing to bear the notorious volatility of the digital asset market in exchange for the prospect of substantial monetary gain.
Another reason for gunning for low-priced cryptocurrencies is that they offer an effective means of portfolio diversification. Apart from allowing investors to spread their funds much wider than they would have if they had put their money in the bigger, more expensive cryptocurrencies, cheap coins have traditionally shown a low correlation to traditional asset classes, such as stocks and bonds.
Analysts attribute this low correlation to the unique factors that influence crypto prices, including technological updates, regulatory news, and market sentiment, which are often distinct from the factors that impact traditional financial markets.
It makes them potentially excellent tools for spreading risk across different types of investments, a factor that could enhance portfolio performance during unstable market conditions.
Perceived risks of investing in cheap cryptocurrencies
Despite their attractiveness as an investment option, low-cost coins come with several risks and limitations, including the following:
Market volatility: Cryptocurrencies, whether cheap or highly priced, are known for their extreme price volatility. The dynamic nature of digital assets often translates into rapid and significant price fluctuations. In the past, we’ve seen coins experience sharp increases, driving investors into a buying frenzy with hopes for substantial returns.
However, we have also seen those soaring prices tumble just as abruptly. Therefore, investors interested in exploring this sector should be aware of these price swings and be ready to face the potential losses they may entail.
Insufficient regulation: Since coming to the fore, the crypto market has been characterized by a lack of significant regulatory oversight.
While it has been a vital factor in crypto’s rapid expansion, the absence of stringent regulations also presents potential challenges. It has created fertile ground for market manipulation strategies, including ‘pump and dump’ schemes, where certain groups or individuals artificially inflate a token’s price for personal gain, only to sell off their holdings once they have enticed other investors to buy, resulting in a precipitous price drop.
Additionally, a dearth of comprehensive regulations opened the door for unethical practices such as insider trading, which may affect a coin’s stability.
Liquidity risks: This refers to the potential difficulty an investor may face when trying to buy or sell a low-priced digital asset without affecting its price.
Cheap cryptocurrencies are often more susceptible to liquidity risk, largely because they may not have as many buyers and sellers, making it harder to trade them without impacting their price.
Technological risks: While the blockchain technology underpinning crypto is deemed to be more secure than the traditional financial system, it still has a few issues. These include potential security vulnerabilities that could lead to loss of investment.
Current and future market trends
Ever since its invention, Bitcoin has been the most dominant cryptocurrency in the market. At one point, it made up approximately 90% of the crypto market capitalization.
Currently, its market share stands at 52.3%, but between 2017 and 2022, data shows that the top 100 coins outperformed it by over 75% annually.
While not at Bitcoin’s level, several low-cost cryptocurrencies, including Ripple (XRP), Cardano (ADA), Dogecoin (DOGE), and Polygon (MATIC), have carved out small niches for themselves in the digital asset market. These altcoins have gained traction, attracting users with lower transaction costs and specialized applications.
Analysts suggest that as the cryptocurrency market matures, the diversity between altcoins will become a key strength, disrupting the historical correlation often seen between Bitcoin and cheaper cryptocurrencies.
Furthermore, regulatory developments could significantly impact the crypto market going forward. The US Federal Reserve’s potential pivot to interest rate cuts by mid-2024 could alleviate pressure on the crypto market, making less expensive digital assets more attractive to investors.
However, market watchers have urged investors looking to add cheap cryptocurrencies to their portfolios to factor in prevailing macroeconomic conditions such as the Fed’s interest rate hikes since March 2022, which, while aimed at curbing inflation, have also made riskier assets such as crypto less attractive.
Identifying promising, cheap cryptocurrencies
When it comes to identify the best cheap cryptos that could explode, it’s crucial to conduct thorough market research. Here are key factors to consider:
Market capitalization: This refers to the total dollar market value of a cryptocurrency’s circulating supply. It is calculated by multiplying the total supply of coins by the current price of a single unit.
According to experts, higher market caps can indicate stability and less risk. However, lower-cap coins may offer substantial potential for growth.
User adoption: Investment experts advise those interested in buying cheap cryptocurrencies to look for ones that have wide user adoption or show signs of growing adoption.
Investors can gauge this by the number of active wallets, transaction volumes, and partnerships with other reputable organizations.
Development activity: Cheap coins from projects that have regular updates and active development may make for a better investment. To find out about such activity, investors can check a project’s GitHub repository.
Community engagement: Regardless of price, potentially successful cryptocurrencies will be backed by vibrant communities. It is advisable to check social media platforms like Reddit, X, and Telegram for active discussions and activities around a coin or project.
XRP is coming off the back of a famous partial victory against the US Securities and Exchange Commission (SEC), which reinstated its standing in the crypto space. The coin is relatively stable and boasts a solid use case, facilitating transactions on the Ripple network.
With a market cap of $34 billion, XRP is currently valued at $0.6333 per unit, making it one of the cheapest cryptocurrencies in the top 100 right now.
Although there are no guarantees that XRP’s price will spike any time soon, its current level means even small upticks could reflect large profit percentages.
Currently at $0.4095 and with a valuation of $14.4 billion that ranks it at #9 on the crypto market cap list, ADA remains one of the cheapest altcoins, even more so now as the crypto space recovers from the slump triggered by the FTX collapse.
Cardano’s price was 27.1% higher in December 2023 than it was at the same point in 2022. In the last 30 days, it has risen 25.7%, while also recording 6.7% and 6.3% jumps in the last week and fortnight, respectively.
ADA has a vibrant community, a strong development team, and numerous use cases, including staking on the Cardano network and transacting on decentralized apps built on it.
DOGE is ranked #10 on the crypto market cap list. It has a fully diluted valuation of $12.8 billion, with each coin priced at $0.0903.
The meme coin is reportedly owned by more than 4 million people, and its presence on social media is not to be sniffed at either. The r/dogecoin subreddit group on Reddit boasts more than 2.4 million members, while the coin’s official X (formely known as Twitter) page has 3.8 million followers, making it one of the largest and most active communities in the crypto space.
Additionally, Dogecoin has constantly been on the receiving end of good press spearheaded by celebrity endorsements, including X owner Elon Musk, rapper Snoop Dogg, and Kiss frontman Gene Simmons.
Although the meme coin’s price is currently down 13.1% from last year, it jumped 31.1% in the last 30 days and 11.8% over two weeks.
Investing in cheap cryptocurrencies entails a substantial amount of risk; therefore, it is advisable to proceed with caution.
Expert advice for building a strategy that protects you while giving you the opportunity to make profits includes diversifying your portfolio across different coins and price ranges, doing your own research, staying informed and up-to-date with news and developments in the crypto market, using trusted platforms, and only investing what you can afford to lose.