Is it Worth Investing in Low-Cap Altcoins?
There are around 18,500 cryptocurrencies recognized by CoinMarketCap and nearly 10,000 in the Bitpush Index, and only the top 750 have market capitalizations over $25 million. Putting $1,000 in a coin valued at $10 million would yield $100,000 if it became a billion-dollar coin, and potentially much more if the coin is valued less at the time of purchasing. However, does this ever happen, and is it worth the gamble?
The idea of buying micro-cap coins is incredibly enticing to many, who see it as an opportunity to get fabulously wealthy with a relatively small initial investment. Additionally, with how fast the crypto market moves, this wealth could come in a matter of months, instead of the several years that it may take in the traditional stock market. For many, microcap coins represent the pinnacle of crypto: the idea of buying a coin at an incredibly small price and getting rich overnight. However, this dream is sadly mistaken.
Unfortunately, 99.5% of the coins outside of the top 250 will never break the top 100, much less be worth more than $1 billion. There are several factors causing this to be true. First, with the sheer number of solid projects in the cryptocurrency space, there simply is not enough room for a decent project to be in the top 100. Only the most promising, innovative, and exciting projects will reach that mark and garner investor attention. Any project that has a questionable use case, poor development, or one of several other negative factors does not stand a chance of surviving the long-term.
Additionally, given how easy it is to make a project and get it listed on CoinMarketCap, there are thousands of bad projects that were created either as a joke, scam, or simply as practice for the developers. Anyone can follow an online guide and create their own cryptocurrency or token within 30 minutes, even if they have no development experience whatsoever. Many cryptocurrencies have been completely abandoned by their developers and have little to no likelihood of ever being revived. Of the projects that are still alive, the vast majority are cheap copies of Dogecoin and other meme currencies that try to market and capitalize on people’s desires to find the next big crypto.
Even though the odds are not in your favor, there is still a chance for you to find the next big project, right? This is far from likely, even if you were to do diligent research and find a project that has a compelling use case, strong developers, and a solid marketing team. Ever since the end of the ICO boom of 2017, projects have become much less focused on fair launches and distributing coins to the public. Instead, just like in traditional finance, projects go to venture capital firms and angel investors and give them a large distribution of tokens. This guarantees the project proper funding while also ensuring that all proper regulations are being followed. Recent projects that have followed this model include Solana, Avalanche, and Polkadot. VC funding also gives these projects a team of top-notch advisors and connections, which help with getting listed on prestigious exchanges like Coinbase, Binance, and FTX. This further perpetuates the cycle of these coins becoming popular and well-regarded, which leads to an even higher price and market cap.
The vast majority of people who buy low-cap coins will ultimately lose money. Even if a project goes up in the short term, the lack of liquidity and volume for the small tokens means it takes less money to move the coin a significant percentage in either direction. Moreover, people buying low-cap coins likely would not want to sell until they see incredibly high returns, which may mean that they end up being up 1000%, choose not to sell, then see the token fall in value 95% and ultimately lose money. One of the best strategies for investors with high risk tolerances is to find projects with recently-completed VC funding rounds and buying that coin after doing diligent research to ensure it is a legitimate pick with a promising use case.
Even though investing in low-cap coins may be thrilling or exciting, calling it investing is a poor choice of words. It is more analogous to gambling, and research merely increase your odds, but does not change the fact that it is incredibly high risk and will likely result in losing money.
By Lincoln Murr