“Oh WoW! CHEAP COINS!! I MUST Have!”
This is the conversation I imagine many newcomers will have in the cryptocurrency sphere during the next heavy bull season. Bitcoin will eventually break above the current period of sideways trading and will certainly find some stability above the $15,000 level. At this time, we will see another wave of newcomers that will enter into the cryptocurrency industry - due to the media hype every time Bitcoin increases, however, these newcomers will see Bitcoin at $15,000 and will look elsewhere to place the investment they had planned for cryptocurrency.
I can imagine the same mistakes of the past occurring again - exactly like a cycle. These newcomers will start to sift through the top 50 cryptocurrency projects and come across cryptocurrencies such as XRP, IOTA, and Cardano. When an uneducated investor sees the individual token price for projects like XRP or IOTA , they immediately think that incredible gains are available on the table.
“These tokens are less than $1 and Bitcoin is $15,000? I am going to BE RICH!!!”
Whilst it is true that XRP is trading around $0.25 at this current moment in time, it is NOT true that XRP will EVER get anywhere near the same token price as Bitcoin. This is not because XRP (or IOTA or ADA) is technically inferior to Bitcoin, it is largely due to a little concept known as Token Economics.
The Amount Of Circulation Determines The Token Price
It is extremely sad to see investors come into crypto without taking the time required for them to do some basic research. When it comes to investing in anything, it is always very important to Do Your Own Research (DYOR) and not rely on the “tips” you read of news blogs and the Twitter Universe.
Looking at a coin that is under $1 and thinking it is “cheap” is a recipe for disaster. Token Economics helps to explain the reason why 1 BTC is priced at $10,000 and 1 XRP is priced at $0.25. The fact that XRP is priced lower than BTC does not mean that XRP may not be bigger than BTC one day. Token Economics dictates that the circulating supply of a token is one major factor to determining the price of the asset.
BTC currently has a current circulation of around 17.8 million BTC, with a total supply limit of only 21 million BTC. At a price of $10,300, the total market cap of the Bitcoin market is around $185 billion. In comparison, XRP has BILLIONS (42 BILLION to be precise) of tokens in circulation! It is currently priced around $0.25 with a market cap of $10.9 billion. It becomes immediately apparent why coins under $1 are not always “cheap” by looking at the circulating supply.
History Repeats Itself - That’s Just How It Goes
The saying proves itself to be true, time and time again! Regardless of the wealth of information out there about investing in cryptocurrencies, there will be a wave of newcomers who will feel slightly “cheated” after going through the novice investment strategy outlined above. This happened in 2017 when every “cheap” looking coin under $1 was on a rocket ship heading toward the “moon”. However, once people started to understand that the coins were not “cheap” - the panic started to set in.
A Catch 22
This is a very tricky situation. On one hand, we can just invest in these cryptocurrencies today and sit and wait for these newcomers to come and “pump” the market. However, on the other hand, there are investors coming into the market that are going to get hurt, once again. This does not help the sentiment of cryptocurrency overall throughout the long term and will help to slow down adoption. It is just a shame that these newcomers do not spend the required time to educate themselves before taking the dive and investing in these “cheap” looking coins.
We will have to wait for altseason to kick-off as Bitcoin continues to dominate the market with a 69% market dominance. However, we could consider every single altcoin “cheap” at this moment in time which would certainly help to capitalize on any potential profits that are on the way when altseason begins!