Pros and Cons of investing in small caps crypto-currency
A lot of people are enticed by the prospect of investing in altcoins which are very inexpensive at the moment, with the hopes of huge potential return multiplers(10x-50x).
A few things to be especially careful of when buying low market cap coins:
Liquidity Risk: The biggest risk with small caps asset is liquidity risk. Which means when you want to sell, there's no one left to buy. There are a few ways liquidity risk can manifest itself. One is simply lack of orders on the book. Another would be having only 1-2 exchanges offered the coin in the first place, and if they delist the entire market disappears.
Watch out for market manipulation: The smaller the size of the market cap, the more susceptible prices are to market manipulation. Look for signs of people moving the price through large orders(unexplainable sharp rise or fall in price with low total volume)
Have the mindset of an angel investor: look for commited teams trying to tackle big ideas. There has to be SOME reason that the coin is being valued low by the community: team not good enough, low chance of success, low worth even if the project succeeds. Out of these, it seems the one to accept is "low chance of success", because investors are terrible at judging the probability of success anyway.
Thanks, nice guidelines to note.
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