Bitcoin, Ehereum, Ripple, Litecoin and a few other high visible cryptocurrencies have made early investors very rich, very quickly. And they could make many more investors rich, provided that they continue to rise at the recent feverish pace that parallels big lottery Jackpots.
But that’s unlikely, as these investments cannot defy the numbers game. This means that would-be rich investors must look for the next lucky coin elsewhere on the cryptocurrency list, while the hype for the digital currencies lasts.
Still, picking up the next winners in the cryptocurrency space is a very difficult thing for a couple of reasons. One of them is that there are more than 1,000 cryptocurrencies to choose from — 1,426 to be precise. Another reason is that there are no “fundamental” metrics to appraise the “intrinsic” value of each coin, as is the case with conventional assets. The only thing available is a site with a promise the coin holds to change the capitalist world, should it be adopted to replace national currencies in day-to-day transactions.
Here’s a quote from Eric Pichet, a KEDGE professor, regarding the “fundamentals” of Bitcoin, which applies to other cryptocurrencies: “Bitcoin has some of the attributes of a headless currency. Nevertheless, it has no intrinsic value ‒ not even as a collector's item because it is intangible," emphasizes Eric Pichet. "Nor is it a financial asset like a stock or bond because it has no returns. Its only investment value lies in the possibility of appreciation bestowed on it by those who hold it: it is an asset with no underlying."
Still there’s behavioral finance and technical analysis that provide a few tips to sift through the cryptocurrency maze for lucky coins.
- Look for cryptocurrencies trading at less than a dollar. That’s important for a couple of reasons. One of them is that a price below a dollar creates the illusion that the cryptocurrencyis “cheap,” especially for investors with little funds to invest. Another is that smaller numbers can more easily double and triple than larger numbers can, adding to hype that could eventually create a cascade. That’s consistent with the astronomical gains we have seen in cryptocurrencies trading a couple of decimals behind zero. Like RubleBit, which trades at 0.038, up 522% in the last seven days. And CYDER, which trades at 0.082, up 7,412%--see table.
- Check cryptocurrency websites to assesswhich coins are most promising. In terms of their potential to be adopted as a currency, that is. In fact, this method can be used to estimate the “intrinsic” value of each coin, once it reaches a certain level of adoption, by using the quantity theory of money.
- Check Reddit to find out which coins have a community following. Reddit communities consist of “innovators” and “early adopters.” Though small, these groups help spread the buzz to a larger group the “early majority,” stimulating demand for the coin. And that means higher prices, when coupled together with a fixed supply.
- Look for cryptocurrencies with a high circulated supply versus the maximum supply. For an obvious reason: these cryptocurrenciesare more likely to rise in price with rising demand, as there’s little supply left to match it.
- Check cryptocurrency volume and price charts. You want to consider cryptocurrencies with a chart of accelerating price and volume growth, as this kind ofchart is a confirmation of momentum for these currencies.
Of course, these tips should be taken with extreme caution. Investing on hype rather than fundamentals is an extremely risky game, as it’s hard to predict when the hype will fade, and coins will become near-worthless.