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Things to be aware of when buying micro-cap cryptos

Things to be aware of when buying micro-cap cryptos

I’ve realised that ‘at a glance’ it looks like a lot of my crypto portfolio is in micro-caps: it isn’t! The majority is in mid-large caps. Yes, there are many micro-caps, but they only make up a very small percentage of the overall value.

This post covers some of the things you should be aware of when considering buying/selling micro-cap cryptos.

What is a micro-cap crypto?

Most define a crypto micro-cap or altcoin as anything under $50M of market capitalization. At time of writing, that is approximately tokens/coins with position 600 or lower in CoinGecko.

As a general rule, large caps (eg Bitcoin, Ethereum) are less risky than mid-caps, which are less risky than low caps, which are less risky than micro-caps…and so on. 

Basically, the lower the market cap, the greater the risk and, in theory, the bigger the potential reward.

However, $50M is still a reasonable size and most coins/tokens at that market cap have decent liquidity for small ‘retail’ buyers like us.

In recent years, there has been huge growth in the number of tokens — CoinGecko now lists almost 10,000! This means there are a massive number of coins ranked below 600 ie coins/tokens with a market cap of less than $50M (around 9,400 of them!!).

So what do we call coins that are significantly below the size of a ‘micro-cap’? 

I have no idea.

For this article, I’ve called them ‘micro-micro’ caps!

Micro cap volatility

When you look at coins with lower market caps, you will see they usually have much more volatility in price. A reasonably ‘small’ sum of money can ‘move the market’ (i.e. make the price change), especially for ‘micro-micro’ caps. 

This is what ‘pump and dump’ groups do — they pick a token with a small market cap (usually one that is available on a major exchange such as Binance), and move the market simply by buying large quantities.

As the price rises, other investors start buying the coin and those who initiated the ‘pump and dump’ then sell at a profit, dumping the price back down.

Large cap volatility

Despite having seen many double-digit losses and gains in a single day, large caps are generally seen as much more stable in their price than micros.

For small ‘retail’ consumers, it’s usually fairly safe to buy anything in the Top 100 at ‘market price’ when using a good exchange because there is a lot of liquidity and the price won’t move much — ie. you will probably pay what you expect.

Basically, that $1,000 you’re spending on Bitcoin is not going to make a dent in the volume of transactions. If there’s lots of liquidity (people buying and selling), it is unlikely that there will be more than a fraction of a percentage difference in price. 

Buying micro-micro caps is different!

As more money comes into the market (and leaves it!), it’s hard to define what a ‘micro-micro’ or ‘super-micro’ cap is. 

For talk-sake, lets say broadly anything under $10M market cap. In CoinGecko right now, that’s anything below around #1,100.

These coins can have extreme volatility and even a few hundred or few thousand dollars can impact on the price. The lower you go, the more easily affected the price will be e.g. a market cap of $2M is going to be more sensitive than one of $10M, however it also depends on the liquidity within the exchange that you choose.

Example: buying $SIN ($3M market cap)

At this time, you can see SIN (Sinovate) is ranked at #1,696 in CoinGecko with a market cap of just over $3 million and the price per token $0.00385.

Sinovate offers three different sizes of Infinity Nodes and the requirements are “MINI Node” (100,000 SIN), “MID Node” (500,000 SIN), or “BIG Node” (1,000,000 SIN). If you’re interested, here are the docs.

Let’s say we want to buy enough SIN to setup a MINI Node — 100,000 SIN.

Looking at CoinGecko you may think, “Great, I’ll have my node for less than 400 USD” ($0.0038 * 100,000 = $385). Let’s take a closer look…

Further down the CoinGecko page, we can see some of the exchanges where you can buy SIN.

What we are looking for is a balance of good trade volume, depth and low spread….alongside a fairly accurate price.

In this case, we decide on STEX exchange and the SIN/USD pair.

Firstly, we see that the price is marginally more expensive, but only a fraction. That’s good 🙂

However when we look more closely…

We can see that yes, there have been recent sales at $0.00389….just about 100,000 SIN’s worth in past 15 minutes. However, when we look at the order book, we can see that the current sell price is starting at $0.00393…and there are only about 12,000 available at that price…88,000 less than what we need. Then we’re up to $0.0040 per $SIN (and possibly a lot higher as only 2,009 available at $0.0040).

So to buy 100,000 $SIN for our node, we’re going to be spending more than what we might originally think when taking a quick look at the CoinGecko price.

In some scenarios, you may even purchase from multiple exchanges to scoop up the lowest price (need to take into consideration network fees).

Also, for any micro-cap, you should always use a stop or limit order. Otherwise, if you choose ‘market price’, you may pay a lot more than you expect…basically the exchange will do it’s best to buy 100,000 units for you regardless of price.

Micro-micro caps: things to consider

You will probably have to register with a much smaller exchange to purchase because these tiny caps simply cannot afford the price of getting listed on Tier 1 or Tier 2 exchanges. Smaller exchanges are likely to be more risky than the ones you already use.

When registering on these exchanges, be sure to check their requirements and fees. Eg do they require KYC? Is there any hold/wait periods placed on your account? Are their fees reasonable? 

Your purchase is likely to be reasonably small, so the exchange fee probably won’t make a big difference eg 0.2% vs 0.15%, however be sure to check withdrawal fees.

Some tokens can be purchased on DEXs (decentralized exchanges) however you usually have no control over the end price and may need to set high slippage for the transaction to go through. Slippage basically gives a % of leniency on the price you’re willing to pay.

In all likelihood the price you pay will be much higher than what you see listed in CoinGecko/CoinMarketCap eg 5-50% more. The reason is because these aggregator sites tend to show the last lowest sell price…and if there is very little liquidity, the chances of you actually being able to buy all the tokens you want at this price is minimal (zero!).

Always check the order books and use a limit order (rather than market)!

Finally, remember that these coins/tokens have a tiny market cap for a reason. In general, they are much higher risk than those which are more established and have a higher market cap. You also may find it more difficult to sell them.

Good luck in your ventures and play safe!

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Disclaimer: As with everything on this site, this article is for informational purposes only and is not advice of any kind. I simply share my experiences and my opinions for information. I am not a financial adviser and I am not providing investment advice or financial or legal advice of any kind. Cryptocurrencies (and most business opportunities) are high risk. Many of the opportunities I discuss exist in new, high risk and unregulated markets. Some methods require significant investment of time and/or relevant skills. Please do your own research and due diligence; do not blindly follow anyone!

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