Why you should invest in small cap coins

The crypto market has grown so big that investors can classify the assets by many factors like trading volumes and market capitalisation. These pointers can tell an investor what is obvious but not evident about a digital asset. 

Background 

Market capitalisation is a metric that measures and tracks the popularity and value of a cryptocurrency.

In simple terms, market capitalisation tells the story of the distribution and demand of crypto assets. It also measures the dominance of the assets and can convince potential investors to commit funds to it. Popular platforms for tracking market cap and other details of cryptocurrencies are Coinmarketcap and Coingecko. 

Market cap is categorised into three: Large-cap, mid-cap, and small-cap.

Large-cap assets are coins with a market cap of more than $10 billion. Coins under this category are $btc, $eth, $bnb, $xrp, $sol and some others. According to investors, they are less volatile and are safe investments. 

Mid-cap digital assets are the ones with a market cap of less than $10 billion but above $1 billion. $Ltc, $link, $uni, $bch, $tron, $mana, $axs and many others fall under this section. They are neither low-risk nor high-risk. 

Small-cap cryptocurrencies are assets with a market cap of less than $1 billion. Popular coins under this category are $crv, $kava, $yfi, $1inch, $sxp, $twt and many others. These assets are considered high risk, and most investors are wary about them. 

We will be focusing on what you should know and why you should invest in small-cap cryptocurrencies. 

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Why you should invest in small cap coins 

Small-cap cryptocurrencies are usually highly volatile assets deemed by investors as high-risk investments. This is because they might be new, forgotten, with less/no hype or have the potential to crash in a short time.

However, what most investors do not seem to realise is that many of these coins are undiscovered gems. They have a high potential of growing massively, yielding huge returns. The assets under this category consist primarily of cryptos that are yet to prove their strength in the market. They are assets that have not realised their potential yet, with much room for growth. 

They are also assets that cater to lower audiences and might be easy to swing their market value. These assets might appeal to ‘whales’ who are high-risk takers, willing to commit funds and make quick returns. A little buying and selling activity for assets in this class can quickly move prices.

Some of the coins with low market caps that made huge returns for early investors in recent times are $axs, $shib, $sand, $mana and so many others. 

Small-cap cryptos put traders and investors in a position to determine its future and growth. This is because their little trading activity could impact its prices.

Downside of small cap coins

However, small-cap cryptocurrencies are usually not top tire coins. This means they can easily crash and have a high potential to run investors into losses. 

One wrong decision from its development team can make the platform crash. They are also hard to market and commit to, as most investors prefer mid or large-cap assets. This is why their growth process is always slow, and they can ultimately collapse in the long run.

Bottomline 

With over 3,000 digital assets in the market, investors will need a metric like market capitalisation to have a proper understanding of them. 

However, market capitalisation is not the only determinant of good returns in crypto trading and investment. Other factors worth paying attention to are real-life utility, team behind the project, hype and so many others. It is also pertinent that investors put effort in thorough research and analysis before aping into any coin.