- A crypto token with a market cap of less than US$50 million is generally considered a microcap crypto
- It is not easy to find microcap crypto tokens as they make less news
- These can be a good investment option if underpinned by a promising new innovation
Microcap cryptos are gaining traction and there is a reason for it. To this day, the true utility of any blockchain-powered project is unknown. Bitcoin, the most popular crypto and the biggest contributor to the cumulative US$2 trillion market cap of the cryptocurrency space, was lately made legal tender in El Salvador. How this will shape up the economic and financial landscape of the country is largely a subject of speculation.
For now, cryptos are an investment asset. Investors are eyeing capital gains by buying, holding and selling their crypto holdings. In this light, crypto tokens with relatively lower market cap but with promising tech have the ability to create wealth.
Also read: How Can I Buy Cryptocurrency In Canada?
What are microcap crypto tokens?
There is no consensus on this. Presently, crypto projects with a market capitalization below US$50 million are considered microcap cryptos.
Volatility is a part and parcel of the cryptocurrency space. This means that a crypto may be a microcap today but not tomorrow. Not many people care that all crypto projects aim to add some new value. For example, Ripple is a decentralized digital payment platform, and Ethereum’s blockchain provides an opportunity to developers to build new decentralized apps and smart contracts.
Are microcap cryptos like penny stocks?
Penny stocks are those stocks that have low market capitalization. There are a number of penny stocks listed on the Toronto Stock Exchange (TSX) that can be a good investment option.
The retail investor rush in global stock markets has resulted in a wave of investment in penny stocks. In a similar way, crypto enthusiasts, bored of mainstream cryptos like Bitcoin and Ether, are looking at microcap cryptos. Penny stocks, however, are less volatile than microcap crypto tokens. The latter can, however, lead to windfall gains in a very short time.
Also read: 10 best crypto wallets in Canada
What are some microcap crypto gems?
1. Armor (ARMOR)
The crypto world is infamous for its unpredictability. What if a platform promises to insure the interests of crypto investors? Armor aims to provide protection to investors against smart contract risks. It bills itself as a “smart cover aggregator” for decentralized finance (DeFi).
Armor claims to track funds of users across multiple protocols and provide comprehensive coverage. The total market cap of ARMOR is US$27 million, according to CoinMarketCap. The token was trading at US$0.21 at the time of writing.
2. xDai (STAKE)
xDai is designed on the EVM or Ethereum Virtual Machine blockchain. The platform has two tokens. The first, xDai, is a stable token. STAKE is the second token of the platform, and its price is determined by market forces.
xDai (STAKE) has a total market cap of US$58 million, according to CoinMarketCap. The token was trading at US$8.84 at the time of writing.
Benefits and risks of microcap cryptos
Microcap crypto projects are relatively unknown to investors. It is not easy to find them easily and this means that competition among investors is less. If the project eventually succeeds in adding value through the technology it brings, a sudden investor rush can lead to huge profits for early-stage backers.
The space is not without risks. A microcap project is also at a relatively higher risk of failing. Some new projects and their tokens can even be a scam. Investors have to be vigilant. Inadequate liquidity is another drawback, which means entering the market is easy but selling the holding can be difficult. Investors need to conduct detailed research before parking money.
What attributes to look for in microcap cryptos?
When conducting due diligence, the foremost priority can be the utility of the project and its token. For example, Armor provides insurance services in the cryptocurrency’s decentralized space. Will this service find takers? Are there any competitors? Is the service better than their peers? There are many questions. Invest when utility is promising.
- Noise, if not utility
As stated earlier, the real utility of cryptos has yet to become clear. The point here is how to increase wealth. We are yet to know if El Salvador’s Bitcoin project will really bring down the costs of remittances.
But if someone has created wealth by investing in Bitcoin, there’s nothing bad in it. If an influencer like Elon Musk is talking about a new microcap crypto token or if it is creating noise on Reddit, it can be a good buy.
Microcap crypto tokens are both promising and risky at the same time. The crypto world has become a world of wild speculation and windfall returns for some.
Returns from popular cryptos like Bitcoin may not be as much in the short-term as from microcap cryptos. Projects with promising technology can be a good buy for investors.