The relatively high valuation of large-cap tokens is pushing some market participants towards small altcoins. Although the profit potential may seem bigger, in reality, it comes hand-in-hand with a series of risks that are not always taken into account. If one of your goals is to start trading small altcoins, we would like to inform you on a series of downsides you need to be aware of before taking this step.
#1 Volatility
Altcoins are more volatile because their price can be easily influenced by any small uptick in trading volumes. Huge price swings mean traders must set higher limits for loss and profits, meaning they will have to trade smaller amounts in order to keep risk under control. Volatility levers up both the potential for profit and risk. As a result, you should get diversified and have exposure on a handful of tokens, since the level of uncertainty around altcoins is very high. It does not matter whether you trade via a small or big crypto exchange.
#2 Lack of trust
Trust is built over time and how could a relatively new company convince a lot of investors that what it plans to do can generate huge profits? In reality, even reliable altcoins have a hard time attracting investors, because of the high level of scam unveiled during the past two weeks. That means you’ll invest in a token that may or may not be successful at some point in time. But the level of success will be determined by a series of factors, that could not even materialize.
#3 Long-term uncertainty
Cryptocurrencies don’t represent long-term investments, no matter what crypto marketers say. At the present time, these digital assets are just speculative instruments. In the long run, we can’t say what could happen with Bitcoin or Ether.
Do you think things are clearer when it comes to small altcoins? How can a small project be so competitive that it manages to gain market share from another similar larger project? If you can find concrete answers to these questions, then you’ve found a reliable startup, but most of the time, you won’t be able to figure out how a project can be successful in the long run.
#4 Small liquidity
Since they don’t enjoy great popularity, the liquidity of small altcoins is thin. As a result, the price action will have a wild performance many times and it will make applying technical strategies very difficult. Any market move can be negated via a few big orders and if we take into account the lack of regulation from the crypto industry, thin liquidity also means small altcoins can be easily manipulated.
