Do “penny coins” really have more potential? – a brief analysis

[Mc_Moneysack]

First of all, I hope that I have chosen the right section of the forum. If not I would kindly ask a moderator to move the thread.

Since I joined this forum I came across quite a few threads in which users asked for advice on which “cheap” coins they should buy. Most of the time people recommended coins that were trading below 1 USD.

I like to call these coins penny coins, by analogy with the penny stocks that enjoy some popularity on the stock market. When I read these recommendations, I started to wonder if these coins really have more potential than normal ones. It somehow didn’t seem logical to me that this would be the case as the low price of penny coins simply reflects the overall supply. After all the market for cryptos works according to the principle of supply and demand and where there is large supply the price will be low. Hence, a coin with a low price is not necessarily undervalued. However, on the demand side a psychological factor could come into play. People could be attracted by the low price of the coins and believe that it could grow up to the value of a coin that has a large supply. This would cause a disproportionate price increase.

In order to test these hypotheses I had a look at six of the top ten coins on CMC and grouped them into coins with large supply on the one hand and coins with a small supply on the other. In order to establish how much the price of these coins had risen I took a price when the coin was pretty “flat” and compared it to the peak price before it went down with the rest of the market. I know this is not exact science, but it should at least provide a sufficient indication.


Coins with small supply

LTC (circulating supply 55.75 M)
Starting price (March 2nd 2017): 3.80 USD
Peak price (December 19th 2017): 353 USD
Increase: + 9289%

NEO (circulating supply 65 M)
Starting price (June 15th 2017): 1.61 USD
Peak price (January 15th 2018): 161 USD
Increase: +9757

ETH (circulating supply 98,36 M)
Starting price (January 22nd 2017): 1.51 USD
Peak price (January 15th 2018): 1389 USD
Increase: +91986%

Coins with large supply

XRP (circulating supply 39.09 B)
Starting price (March 3rd 2017): 0.006 USD
Peak price (January 4th 2018): 3.65 USD
Increase: +60833%

XLM (circulating supply 18,55 B)
Starting price (March 2nd 2017): 0.0017 USD
Peak price (January 4th 2018): 0.08 USD
Increase: +47058%

IOTA (circulating supply 2.78 B)
Starting price (June 14th 2017): 0.59 USD
Peak price (December 6th 2017): 5.34 USD
Increase: +905%

As you can see, two coins (XRP and XLM) with a large supply are amongst the top three performers. However, ETH, which has a small supply, performed even better. So we can’t draw any clear conclusions. It would probably be necessary to gather a greater sample of coins. I nevertheless believe that it is a save recommendation to say that one should always choose a project according to the idea behind it since a low price does not mean it’s undervalued. Don’t buy a coin simply because it has a price below 1 USD. Always factor in the overall supply and even more importantly what the prospects of the project are.

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[eminemcookie]

It's just a case of market cap, price times by total supply. 1 million coins at 1 cent each is the same as 1 coin at ten thousand. A lot of people who are inexperiences don't understand this and just see that bitcoin went from under 1 cent to now $10,000ish and think that this can be the case for other coins under 1 cent. Unfortunately those days are gone, even coins under 1 cent are mostly from ICOs raising at least $10m, that would mean even if they matched bitcoin's market cap they would only reach a price of about $150.

[BartS]

It's just a case of market cap, supply times by total supply. 1 million coins at 1 cent each is the same as 1 coin at ten thousand. A lot of people who are inexperiences don't understand this and just see that bitcoin went from under 1 cent to now $10,000ish and think that this can be the case for other coins under 1 cent. Unfortunately those days are gone, even coins under 1 cent are mostly from ICOs raising at least $10m, that would mean even if they matched bitcoin's market cap they would only reach a price of about $150.

The number of coins circulating is mostly irrelevant for all purposes, what it is important is the market cap, for example in the most extreme scenario lets suppose we have a coin with a market cap of 1 million dollars and with a single coin of circulating supply that coin will be worth 1 million dollars but that doesn't mean that the project is worth anything in fact it will be one of the projects with the lowest market cap, despite having a very high price for each coin.

[eminemcookie]

It's just a case of market cap, supply times by total supply. 1 million coins at 1 cent each is the same as 1 coin at ten thousand. A lot of people who are inexperiences don't understand this and just see that bitcoin went from under 1 cent to now $10,000ish and think that this can be the case for other coins under 1 cent. Unfortunately those days are gone, even coins under 1 cent are mostly from ICOs raising at least $10m, that would mean even if they matched bitcoin's market cap they would only reach a price of about $150.

The number of coins circulating is mostly irrelevant for all purposes, what it is important is the market cap, for example in the most extreme scenario lets suppose we have a coin with a market cap of 1 million dollars and with a single coin of circulating supply that coin will be worth 1 million dollars but that doesn't mean that the project is worth anything in fact it will be one of the projects with the lowest market cap, despite having a very high price for each coin.

Yes but the number of coins circulating limits the price a coin can rise to through transitivity. Market cap always has a ceiling based on project success and so an initial higher supply means a lower potential price.

[Mc_Moneysack]

It's just a case of market cap, supply times by total supply. 1 million coins at 1 cent each is the same as 1 coin at ten thousand. A lot of people who are inexperiences don't understand this and just see that bitcoin went from under 1 cent to now $10,000ish and think that this can be the case for other coins under 1 cent. Unfortunately those days are gone, even coins under 1 cent are mostly from ICOs raising at least $10m, that would mean even if they matched bitcoin's market cap they would only reach a price of about $150.

The number of coins circulating is mostly irrelevant for all purposes, what it is important is the market cap, for example in the most extreme scenario lets suppose we have a coin with a market cap of 1 million dollars and with a single coin of circulating supply that coin will be worth 1 million dollars but that doesn't mean that the project is worth anything in fact it will be one of the projects with the lowest market cap, despite having a very high price for each coin.

Yes but the number of coins circulating limits the price a coin can rise to through transitivity. Market cap always has a ceiling based on project success and so an initial higher supply means a lower potential price.

Isn’t market cap simply the supply x the price of a single coin? So market cap doesn’t say anything about the potential of a coin. Your example is extreme. If there is only a supply of one coin there is only one holder that will determine its value. However, if there is no buyer it will be completely useless. It’s like saying that I’ll trade you my old bycycle for your lambo...

I am absolutely certain that supply has a big impact on the price, since it’s a simple question of supply and demand. The rest is psychology.

[ltguk]

Supply & Demand Play a role in price = Yes
Psychology plays a 'greater' role in price = Yes x 2
For the second factor, use cases, what problem is being solved? etc etc will drive buying or selling. So this psychology becomes primary layer which drives the secondary layer...supply & demand is part of secondary layer.

[waynechong1995]

Only a few lucky ones would able to enjoy such potential growth in altcoins, seems like all of these successful coins are a very major driver like especially being marketed successfully, as well being a similar solution but a different major market like china , its all about timing for me i think, like NEO is always perceived as the china version of ETH, xlm being xrp and so on, supply and demand are primarily indicators but it doesn't work well without the proper instrument, it just doesn't last long for investors to take them seriously.

[eminemcookie]

It's just a case of market cap, supply times by total supply. 1 million coins at 1 cent each is the same as 1 coin at ten thousand. A lot of people who are inexperiences don't understand this and just see that bitcoin went from under 1 cent to now $10,000ish and think that this can be the case for other coins under 1 cent. Unfortunately those days are gone, even coins under 1 cent are mostly from ICOs raising at least $10m, that would mean even if they matched bitcoin's market cap they would only reach a price of about $150.

The number of coins circulating is mostly irrelevant for all purposes, what it is important is the market cap, for example in the most extreme scenario lets suppose we have a coin with a market cap of 1 million dollars and with a single coin of circulating supply that coin will be worth 1 million dollars but that doesn't mean that the project is worth anything in fact it will be one of the projects with the lowest market cap, despite having a very high price for each coin.

Yes but the number of coins circulating limits the price a coin can rise to through transitivity. Market cap always has a ceiling based on project success and so an initial higher supply means a lower potential price.

Isn’t market cap simply the supply x the price of a single coin? So market cap doesn’t say anything about the potential of a coin. Your example is extreme. If there is only a supply of one coin there is only one holder that will determine its value. However, if there is no buyer it will be completely useless. It’s like saying that I’ll trade you my old bycycle for your lambo...

I am absolutely certain that supply has a big impact on the price, since it’s a simple question of supply and demand. The rest is psychology.

It is. And a coin's overall value is determined by its market cap which is realistically capped, for example bitcoin is capped by the maximum potential usage, beyond that point there will be no further demand to push the price higher. So when looking to invest in a new coin it is common to look for low market cap projects that have high market cap potential. If there are two identical projects each with a price of $1 but one has a 10m supply and the other 1bn, it's clear to see that the one with a 10m supply is a better investment and has more room for growth. But if they are identical projects but one has 10m supply and a $100 price and the other is 1bn supply with $1 price then investing $100 in to each should in theory offer the exact same returns. I hope that clears up my point.

[Mc_Moneysack]

It is. And a coin's overall value is determined by its market cap which is realistically capped, for example bitcoin is capped by the maximum potential usage, beyond that point there will be no further demand to push the price higher. So when looking to invest in a new coin it is common to look for low market cap projects that have high market cap potential. If there are two identical projects each with a price of $1 but one has a 10m supply and the other 1bn, it's clear to see that the one with a 10m supply is a better investment and has more room for growth. But if they are identical projects but one has 10m supply and a $100 price and the other is 1bn supply with $1 price then investing $100 in to each should in theory offer the exact same returns. I hope that clears up my point.

Thank you, you made your point clear. I think it is safe to say that the factors market cap, price and supply always need to be considered together, when making an investment choice, since only looking at one factor could lead to a wrong conclusion like "buy "cheap" coins below 1 USD".

[eminemcookie]

It is. And a coin's overall value is determined by its market cap which is realistically capped, for example bitcoin is capped by the maximum potential usage, beyond that point there will be no further demand to push the price higher. So when looking to invest in a new coin it is common to look for low market cap projects that have high market cap potential. If there are two identical projects each with a price of $1 but one has a 10m supply and the other 1bn, it's clear to see that the one with a 10m supply is a better investment and has more room for growth. But if they are identical projects but one has 10m supply and a $100 price and the other is 1bn supply with $1 price then investing $100 in to each should in theory offer the exact same returns. I hope that clears up my point.

Thank you, you made your point clear. I think it is safe to say that the factors market cap, price and supply always need to be considered together, when making an investment choice, since only looking at one factor could lead to a wrong conclusion like "buy "cheap" coins below 1 USD".

Exactly that, I'm glad I cleared it up. Those are the exact wrong conclusions that many make, they see bitcoin went from under 1 cent to be thousands of dollars and look to buy all coins under 1 cent but many of them may already be close to their highest potential price because there's such a large supply.

[Hydrogen]

I suspect there are similarities between penny coins and penny stocks. The methodology behind trading penny assets could be based on a few generalized principles.

Here's a brief attempt to theorize why penny assets could have potential advantages.

#1 There is less capital distance necessary to move a penny coin from $0.20 to $0.30 for a 50% gain, than there is to move bitcoin from $9,000 to $13,500. For sake of discussion, imagine a scenario where it takes 100 trades to move a penny coin $0.20 to $0.30 and 100 trades to move bitcoin from $9,000 to $13,500. The penny stock would require much less capital to execute those 100 trades, which could make it a path-of-less-resistance to traders. This could in turn make it more likely to be attractive to speculators who are interested in insider trading, currency manipulation or coordinated pump and dump, all of which could constitute a decent percentage of major price movements.

#2 Penny coins have less trading volume which could translate to it being easier to move their price upwards by a considerable percentage in comparison to more established crypto currencies like btc. There is a variation of #1 but still possibly a valid point.

#3 Coins with lower supply could theoretically be easier to move price upwards (or downwards) in comparison to coins with larger supply based on the hypothesis that lower supply might be correlated with lower trading volume. This could define some of the elusive relationship which exists between supply and trading.

Feel free to add more #'s I'm certain there are other perspctives on this.   

[Noelbetty12]

There are so many things to look at before we can say penny coins can do better. For example if many would be using it increasing its marketability . Does its network have a fast transaction process where anybody really likes about? And so many other things that could help in its usage popularity. So i think its base on popularity that it is marketable.

[darkangel11]

I suspect there are similarities between penny coins and penny stocks. The methodology behind trading penny assets could be based on a few generalized principles.

Here's a brief attempt to theorize why penny assets could have potential advantages.

#1 There is less capital distance necessary to move a penny coin from $0.20 to $0.30 for a 50% gain, than there is to move bitcoin from $9,000 to $13,500. For sake of discussion, imagine a scenario where it takes 100 trades to move a penny coin $0.20 to $0.30 and 100 trades to move bitcoin from $9,000 to $13,500. The penny stock would require much less capital to execute those 100 trades, which could make it a path-of-less-resistance to traders. This could in turn make it more likely to be attractive to speculators who are interested in insider trading, currency manipulation or coordinated pump and dump, all of which could constitute a decent percentage of major price movements.

No. The price is irrelevant. It takes more to move a currency with 1m coins up by 50% than a currency with 1k coins, even if that second one is worth a 100 times more per coin. So you have a coin worth 1 USD and a coin worth 100 used and you'll still need more money to pump that 1 USD coin by 50%.
The number of trades is also irrelevant. The major factor here is the supply of coins on a given exchange and the number of traders interested in buying it.
Most of you seem to be taking the price for granted, like it's the indicator of value. In reality only a small fraction of the supply is being traded. If all holders moved their coins to exchanges you could say the charts are the exact representation of the value.
 

#2 Penny coins have less trading volume which could translate to it being easier to move their price upwards by a considerable percentage in comparison to more established crypto currencies like btc. There is a variation of #1 but still possibly a valid point.

#3 Coins with lower supply could theoretically be easier to move price upwards (or downwards) in comparison to coins with larger supply based on the hypothesis that lower supply might be correlated with lower trading volume. This could define some of the elusive relationship which exists between supply and trading.

Feel free to add more #'s I'm certain there are other perspctives on this.  

That's right. Pumpers love these coins because they can get a lot without much effort and influence the price. The problem with new shitcoins is that you never know what the dev team has planned for it. They may decide to unload their secret premined stash one day and drown you.

[Hydrogen]

No. The price is irrelevant. It takes more to move a currency with 1m coins up by 50% than a currency with 1k coins, even if that second one is worth a 100 times more per coin. So you have a coin worth 1 USD and a coin worth 100 used and you'll still need more money to pump that 1 USD coin by 50%.
The number of trades is also irrelevant. The major factor here is the supply of coins on a given exchange and the number of traders interested in buying it.

Most of you seem to be taking the price for granted, like it's the indicator of value. In reality only a small fraction of the supply is being traded. If all holders moved their coins to exchanges you could say the charts are the exact representation of the value.

Au contraire, price is important. From the perspective of traders they often select the path of least resistance. This implies they sometimes invest in assets which are relatively easier to move on a price point basis. If bitcoin is priced @ $9,000, on a per unit basis it requires $9,000 to move 1 unit (1 bitcoin) in terms of volume. With penny coins priced lower @ $0.30 it only requires 30 cents to move 1 unit. It requires far less money to move the price value of a penny coin, than it does to move the dollar value of a more expensive asset like bitcoin.

On some exchanges, there is no commission fee for buying/selling. Its been suggested that some traders buy and sell assets to themselves to artificially inflate/deflate the value of crypto currencies. The lower price point and value of penny stocks makes it easier for someone with less money on hand to accomplish this. With bitcoin's higher price point, that makes things more difficult.

[TheHas]

I don't think you can make a decision on if buying a 'penny' coin (under 1 USD) is a good idea without considering the total coin supply, and if the supply is capped or if it continues to grow every year.

Coins like Ethereum are actually uncapped and will grow every year from mining (pow or pos) - so technically infinite supply.

I think the real concepts or decisions are similar to buying any penny (or low priced) 'stocks' - some will become the next amazon while some will become worth nothing, just like what happened in the dotcom boom.

[supermine]

I don't think you can make a decision on if buying a 'penny' coin (under 1 USD) is a good idea without considering the total coin supply, and if the supply is capped or if it continues to grow every year.

Coins like Ethereum are actually uncapped and will grow every year from mining (pow or pos) - so technically infinite supply.

I think the real concepts or decisions are similar to buying any penny (or low priced) 'stocks' - some will become the next amazon while some will become worth nothing, just like what happened in the dotcom boom.

Yeah ypu are right,don't expect all the seeds to grow so all the penny coins won't grow as much as he mentioned like bitcoin or litecoin.Investing on these coins are risky but if it grows over the year then he will make huge profits.But he need to take risk and research more about that technoloy of that coin before investing on it,the price maybe not a matter to invest.

[Chaki]

Every coin has their potential to grow but some misses it up.
Supplies and the price do matter when we talk about growth, but the thing how they advertise 'penny' to everyone, or how does this coin will function aside from being piece to be traded on the market.

[eminemcookie]

No. The price is irrelevant. It takes more to move a currency with 1m coins up by 50% than a currency with 1k coins, even if that second one is worth a 100 times more per coin. So you have a coin worth 1 USD and a coin worth 100 used and you'll still need more money to pump that 1 USD coin by 50%.
The number of trades is also irrelevant. The major factor here is the supply of coins on a given exchange and the number of traders interested in buying it.

Most of you seem to be taking the price for granted, like it's the indicator of value. In reality only a small fraction of the supply is being traded. If all holders moved their coins to exchanges you could say the charts are the exact representation of the value.

Au contraire, price is important. From the perspective of traders they often select the path of least resistance. This implies they sometimes invest in assets which are relatively easier to move on a price point basis. If bitcoin is priced @ $9,000, on a per unit basis it requires $9,000 to move 1 unit (1 bitcoin) in terms of volume. With penny coins priced lower @ $0.30 it only requires 30 cents to move 1 unit. It requires far less money to move the price value of a penny coin, than it does to move the dollar value of a more expensive asset like bitcoin.

On some exchanges, there is no commission fee for buying/selling. Its been suggested that some traders buy and sell assets to themselves to artificially inflate/deflate the value of crypto currencies. The lower price point and value of penny stocks makes it easier for someone with less money on hand to accomplish this. With bitcoin's higher price point, that makes things more difficult.

It's funny how you two got at what I was discussing above with someone else. I see it being the same thing in your discussion. It's actually a matter of market cap when it comes to moving the price. While it may be easier/cheaper to move 1 coin, the moving of that 1 coin will have a lesser effect on price because it makes up a much smaller percentage of the overall supply. I don't disagree that it's easier to move the price of lower priced coins but that's because they just all happen to be of a lower market cap than bitcoin. Let's say that bitcoin forked and one fork used mbtc instead, other than that they're exactly the same. It wouldn't be any easier or harder to move the price of either of them, despite one having a lower price and higher supply.

[darkangel11]

It's funny how you two got at what I was discussing above with someone else.

I don't find it funny when someone is contradicting the well established facts. And comparing a coin worth 9k USD to a coin worth 30c.

If bitcoin is priced @ $9,000, on a per unit basis it requires $9,000 to move 1 unit (1 bitcoin) in terms of volume. With penny coins priced lower @ $0.30 it only requires 30 cents to move 1 unit. It requires far less money to move the price value of a penny coin, than it does to move the dollar value of a more expensive asset like bitcoin.

If that 30c coin had the supply allowing it to reach the market cap of BTC it would be exactly as difficult to influence its value.
It doesn't matter how much money you need to move a single unit. What matters is the part of the whole supply that you'll be able to move. You can keep buying or selling a million coins per day and it won't matter if the supply is in billions. At the same time if you could sell 1 million coins on the Bitcoin market, with a supply of 17 million, you'd be crashing the value within a day. I don't see anything to argue here, it's all simple math.

[Beerwizzard]

So market cap doesn’t say anything about the potential of a coin.

It does. I'll try to explain.
Lets take a look at ETH. The coin is supposed to be a currency and a fuel for purchasing tokens on Ethereum platform if there is 1 mln coins worth of 1$ each and the current demand on ICO tokens is worth 1 mln then the price will remain at 1$. If some more ICOs will be released then the price will also go up. But if the supply will be 1 bln with the same demand then the price of 1$ won't be backed and will go down pretty fast. Current market cap helps us to determine the potential fpr further growth. If the MC is 1bln without any strong usage of this coin then it is less likely to do at least x2 while low caps can moon.

Psychology plays a 'greater' role in price = Yes x 2

The development of the coin and PR matters, not the psychology. Nothing will get pumped just  because of low price.

If that 30c coin had the supply allowing it to reach the market cap of BTC it would be exactly as difficult to influence its value.
It doesn't matter how much money you need to move a single unit. What matters is the part of the whole supply that you'll be able to move. You can keep buying or selling a million coins per day and it won't matter if the supply is in billions. At the same time if you could sell 1 million coins on the Bitcoin market, with a supply of 17 million, you'd be crashing the value within a day. I don't see anything to argue here, it's all simple math.

You are mostly right but imho the exchange volume plays more important role. For example during the dips more people are hodling their coins. At those times you don't need to buy the % of the total supply, just some of the currently treded coins. The whole supply probably won't be in the market.