A new term has entered the crypto space: penny cryptocurrencies. If you Google the term, you will come across several advisory sites promoting “the best” altcoins under a dollar.

There’s a problem with this. The problem isn’t with penny cryptos, as in, altcoins priced under a dollar. The problem is with the term “penny cryptocurrencies,” as it conflates two concepts—penny stocks and (low-priced) cryptocurrencies—toward a single reductive idea that diverts attention away from the attributes of the coins themselves.

The site cryptocurrencyfacts.com, perhaps in a moment of sheer idiocy, writes:

“Most cryptocurrencies in general are a bit like penny stocks. They are volatile, subject to manipulation, tend to be lower volume than blue-chip coins like Bitcoin (never-mind blue chip stocks like Coca-Cola), and also often literally cost pennies…They are like penny stocks in that way, that is in that they are cheap for whatever reason, but they are like them in another way too…In that, you can buy 20 that look good, and while one might make you rich, the rest will likely burn you hard.

Sure, penny stocks are “subject to manipulation” and the volatility resulting from a lack of market liquidity. But that’s not what characterizes (the notion of) a “penny stock.” It’s also important to note the difference between the SEC’s technical definition versus the common “notion” that most investors hold with regard to penny stocks, the latter having more to do with un-sound business fundamentals based on an analytical model that radically differs from the monetary and non-monetary “fundamentals” of an altcoin.

The description above completely abolishes the definitional characteristics that matter most

Furthermore, the last sentence refers to a speculative circumstance that easily slides past not only the characteristics of a penny stock but also the conflation of analytical categories separating the dual concepts:  penny stock and low-priced altcoin; blue-chip stock and altcoin with larger market capitalization.

Invest in Blockchain’s Anna Snyder does a much better job differentiating the two concepts in her article Penny Stocks: Are They Worth Your Time? Snyder’s article is actually worth reading.

A few comments though:

“There are thousands of coins out there, and a good portion of them, it has to be said, will likely crash and burn.”

  • This can be said for most investments. Over time, not all of them pan out in your favor.

“The success of any altcoin is notoriously difficult to predict”

  • Unless you have a crystal ball, or unless you are betting on something of a “mechanistic” nature (like turning on a light switch), no speculative investment is predictable. If your calculated wager results in a favorable outcome, your sense of prediction is an effect of hindsight.

“A coin that has a large supply keeping its prices down for the time being could be a good investment. If a coin is structurally sound and has a cohesive whitepaper, a sudden spark in public interest could cause a spike in value, as was the case with Ripple.”

  • In addition to this, the process of production—whether a coin has a fixed coin limit or operates with a fixed or loose inflationary model—may also make a big difference.

“On the other hand, a penny coin that used to be worth more but then took a dip in price is unlikely to recover. To invest in a coin that has plummeted from a great height would require a deep confidence in the cryptocurrency itself (statistically speaking, probably unfounded).”

  • It’s important to penetrate the statistic to find out “why” a digital currency had dropped. To say that a drop in price is the same as a drop in value–which in the crypto space is measured in terms of currency value and (non-monetary) technological value—is to conflate two processes that exist in two distinct yet inter-related realms.

So, what’s the best way to analyze a “penny cryptocurrency”? Drop the term “penny” and all of its accompanying connotative biases that may only prevent you from analyzing an altcoin from a clear, objective, and analytical perspective.

 


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