Can trading unknown cryptocurrencies be profitable?

For most investors, trading bitcoin and Ethereum seems like a good idea because they are the most popular cryptocurrencies right now. They will often be mentioned in the news and written about in blogs and social media platforms. However, there are over a thousand cryptocurrencies in total, all of which can be bought as an investment. The only question, therefore, remains to be whether an investor should put their money in these unknown cryptocurrencies. I believe not, since more often than not, they fail.

Before I begin to explain myself, I think it’s important to explain what I think are unknown cryptocurrencies. It doesn’t refer to all other cryptocurrencies apart from bitcoin and Ethereum, but rather those coins that don’t appear on the top 10 list on Coinmarketcap. IOTA, Litecoin and Dash, for example, are not unknown cryptocurrencies since they too get some attention.

In this regard, therefore, I consider unknown cryptocurrencies to be like penny stocks, and therefore not worth investing in. It is easy to get attracted to penny stocks because they are cheap and have sharp fluctuations in price. At first glance, it can be seen as an opportunity to make quick money when the value of a penny stock goes up, but it rarely happens. This attraction to quick profits becomes just like gambling, and in most cases ends up in tragedy. It is the same with unknown cryptocurrencies – a lot more of them fail compared to those that succeed.

On the website DeadCoins, there is a list of over 600 coins that have failed to make any impact. Out of 1,343 cryptocurrencies in the market, this almost accounts for 50% of all cryptocurrencies. Now ask yourself, when was the last time you ever scrolled down past the 50^th largest cryptocurrency by market capitalization.

Do you want even more reasons? Consider this, it doesn’t take much to create a cryptocurrency. The code for a blockchain is open-source, meaning that anyone can create their own version. This simplicity has made cryptocurrencies an easy way for scammers to create pump and dump schemes, where they launch a coin without any forethought, collect some money and disappear. Do not allow yourself to fall into this trap and avoid trading unknown cryptocurrencies.

On the other hand, I suppose there may still be some valid opportunities in these unknown cryptocurrencies. After all, today’s popular coins like Monero were once despised as scams when they were first launched. So, how do you know when one such coin is profitable and when it isn’t? That is the problem because you can’t read through every coin’s whitepaper to determine how profitable it might be. Still, it is better to be cautious and on the lookout for those unknown cryptocurrencies that seem to be suddenly getting a lot of attention.

Now to answer the topic question… yes, trading unknown cryptocurrencies can be profitable, just like trading penny stocks. However, the risks are just too high to justify such an investment, and it’s not worth it.