There are some striking similarities between cryptocurrencies and penny stocks that not many people talk about. In the crypto community it seems enthusiasts and investors like to see the coins as some form of asset of a large company but in reality altcoins are often much more like a penny stock than the stock of a major blue chip company. Like with any comparison there will be exceptions to the rule as Bitcoin itself is much more similar to a commodity or the stock of a major corporation.
Many crypto enthusiasts would turn away from the notion of even considering investing in penny stocks even though the reality is what they are doing by investing in smaller cryptocurrencies is comparably the same as this investing strategy. So if you are interested in cryptocurrency investing you might want to broaden your horizons and make a list of stocks to watch in the penny stock market as well. Most of us are in it for the big wins in the cryptocurrency market so having a few watched penny stocks can’t hurt.
The market cap
The market capitalization is one aspect of many cryptocurrencies that makes them much more comparable to penny stocks than to blue chip stocks. For example, on many exchanges you will have access to a wide variety of different coins and not just the major ones. The total market cap of these coins is often less than one hundred million dollars which brings it into the realms of a smaller size company that is listed on a major exchange.
In many cases the market capitalization of cryptocurrencies can come in as a smaller amount than a penny stock that is listing on the NYSE so this in particular shows that cryptocurrencies are very much in the realms of high risk penny stock investing.
Obviously this is not always the case with cryptocurrencies as the market capitalization of an asset such as BTC leaves it in the realms of a mid to large sized company on an exchange but that’s it. The total cryptocurrency market is no bigger than a single large company on the likes of NASDAQ or the NYSE.
Hopefully this will make you look at investing in cryptocurrencies a little differently as all you are ever investing in is something smaller than the largest companies in the world, and often you are investing in something smaller than the smallest publicly listed companies when you invest in a relatively unknown altcoin.
The cost of entry
Penny stocks are generally stocks that have a stock price of less than $10 per share. This isn’t the norm in equity investing as the vast majority of the volume of equity investments goes into stocks that have a significantly higher price than $10.
As a general rule penny stocks are cheaper to enter as it is much harder to get a stable return out of investing into this subsection of the stock market. The same can be said for investing into some of the mid to smaller sized altcoins as they tend not to show steady returns on investment.
The cost of a penny stock and the cost of a cryptocurrency can often be less than $1 or in many cases even less than $0.01. If you are investing in companies on the OTC markets you can often find companies that are priced less than $0.01 and the same can be said when looking at altcoins on major cryptocurrency exchanges.
You would be hard pushed to find a stock on the market for less than $1 that has a strong amount of trust behind it but the same cannot be said for cryptocurrencies of the same value.
What we are suggesting is that maybe the trust for cryptocurrencies priced at less that $1 is perhaps a delusion.
Cryptocurrencies in many cases have no reporting standards at all. This is an incredibly scary thing as it leaves the market wide open for manipulation. The reporting standards of the major exchanges such as the NYSE and NASDAQ can be compared to the reporting standards of the major cryptocurrency exchanges but in all reality there is no comparison to the level that must be delivered by major stocks.
As a general rule the penny stock market tends to operate on the OTC markets, which still have stronger reporting standards than many cryptocurrency exchanges but compared to major exchanges the OTC markets standards are minimal.
This means that the reporting standards of cryptocurrencies are easily comparable to the reporting standards of the OTC markets but in many cases there is no standard at all.
This fact leaves a lot to be desired as strong reporting usually drives the price of an asset whereas in the cryptocurrency markets the price of an asset is often linked to sentiment alone.
Last but by far not least, the volatility in the penny stocks market is comparable to the volatility on cryptocurrencies. Penny stocks tend to rise and fall wildly and the same can be said about cryptocurrencies. Other assets like major stocks, currency pairs and commodities tend to be less volatile and much more stable than the prices of cryptocurrencies and penny stocks.