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Should You Invest In Smaller Cryptos?

investing in smaller cryptos

June 1, 2021 | 

846 Views | 

JOHN K MWANIKI | 

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Cryptocurrencies or simply cryptos are digital coins used for online trades, transfers, and purchases. They are highly volatile assets as they are prone to heavy fluctuations that see their value depreciate as soon as it appreciates. Bitcoin is the most prevalent virtual currencies, but it is not alone. Others include Etherium, Litecoin, Ripple, Binance coin, bitcoin cash, etc.

Cryptos in a nutshell

Cryptos vary in value compared to the US dollar. They can be traded against other fiat currencies, including the dollar, euro, pound, etc., but regulations apply depending on the currency. Smaller cryptos, also known as altcoins, provide alternatives for major cryptos such as those mentioned above, but they come with their own risks as an investment. Many smaller cryptos were created after the prevalence of bitcoin, and many of them are seeing a positive growth rate occupying a market cap of 40% in the crypto industry.

According to Ben Weiss, chief operating officer of Coin Flip, more than 5000 altcoins exist in the crypto market, which indicates that their economic potential may be challenging to achieve in the long term. But many of the smaller cryptos have great growth potential and make it easier to improve blockchain technology for the better. For instance, Chainlink aims to bridge the disparities in the blockchain space.

Many investors and traders alike find smaller cryptos reliable and unique investment options. They are beneficial in diversifying one's investment portfolio so that if one of them crumbles, you are left holding on to the others. However, it is challenging to rule out the possibility of running into a loss or making significant profits unless one carries out in-depth research beforehand—market analysts advise investors to first calculate the market risk factors before making a crypto investment.

Reasons to invest in smaller cryptos

Cryptocurrency trading and investment are increasingly gaining global popularity. The crypto industry came with a boom, and many global investors have since joined the race by purchasing a lot of altcoins.

With more institutional investors investing in smaller cryptos, that has pushed their values to surge dramatically. According to many financial analysts, such market activities in the crypto space can cause the trends to move both ways, making the cryptos plunge or gain a price momentum.

According to Ben Weiss, there some seasons in the crypto market whereby price conquer market timing, making it challenging to speculate crypto trades. As such, you should invest in smaller cryptos you can count on for the long term. That is better than relying on the short-term frenzy for digital currencies with a hasty status because you are prone to lose more in case of a pullback. 

Weiss further states that if you invest in smaller cryptos for the long term, you must believe in the crypto you choose as a better investment because it could as well be just a gamble.

Are smaller cryptos a significant investment?

According to the chief marketing officer of Docuspace, a digital operations tech company, Ryan George, we can't tell if smaller cryptos are a good investment yet, and investors should beware of those who provide a decisive answer to such a question.

If you are determined to invest in smaller cryptos, there are reliable and regulated exchanges that boost investors' confidence. Generally, some smaller cryptos work considerably better than bitcoin. Non-bitcoin cryptos are based on their own guidelines compare to bitcoin. For example, bitcoin mining takes approximately ten minutes while other cryptos, such as Litecoin mining takes around three minutes. 

That means Litecoin can process transactions much faster. Based on the market data, there are 21million bitcoin units while Litecoin has 84million units. Furthermore, mining Litecoin is based on convenient regulations, while bitcoin mining requires complex equipment and is costly.

Benefits of smaller cryptos

  • They provide solutions to bitcoin drawbacks. Many smaller cryptos in existence were created to enhance bitcoin's network drawbacks, including high mining costs and transaction processing speed.

  • Provide a healthy investment competition. Other cryptos attempt to modify the established guidelines for crypto to facilitate healthy competition in the crypto space.

  • Affordable transaction costs- one reason to invest in smaller cryptos and use them as a payment method is because they offer affordable transaction fees compared to bitcoin.

  • Robust blockchain- many smaller cryptos attempt to enhance blockchain technology and provide better services.

Drawbacks of smaller cryptos

  • Susceptible to scams- we have seen many cases of cryptos that appeared on the market and disappeared within no time. As such, you cannot rule out the possibilities of coming across fake cryptos along with dominant cryptos in the crypto market.

  • High fluctuation rates- smaller cryptos are prone to plunge or surge depending on the market conditions. Although every investment comes with a risk, smaller cryptos heavily fluctuate.

Are cryptos safe?

Cryptos come with certain risks that are not as prevalent with other assets such as bonds and stocks. Crypto exchanges are susceptible to cyber hacks and other cyber-criminal activities, and we have seen such cases before. Such data breaches lead to significant losses for investors whose crypto investments are stolen, never to be seen again.

Crypto frauds and scams are also prevalent. Illegitimate blockchain projects that promise investors of high returns end up not meeting their lofty promises. Investors who buy into such hypes suffer significant losses when the projects fail.

There is also the risk that the crypto project you invest in may not succeed. Therefore, you must undertake your due diligence before you invest in smaller cryptos.

CONCLUDING THOUGHTS

All in all, the blockchain industry continues to expand, and the much-needed financial infrastructure is developing to offer investors the tools they need to manage risks and secure their crypto assets. Investing in smaller cryptos allows you to diversify your investment portfolio, but you must understand the risks before indulging.

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