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Ask CryptoVantage: Why Are Certain Altcoins So Cheap?
It may be cheap, but Dogecoin is probably not the crypto asset you should be buying. Sure, it jumped up the charts after a combination of Elon Musk and Wall Street Bets pushed the meme coin from not even being worth half of one cent to being worth over 8 cents a piece in early February 2021. But Dogecoin was cheap for a reason, it has an unlimited supply, and can be mined endlessly, there is no scarcity, and no reason for it to hold any value.
Bitcoin is the complete opposite in terms of supply. Dogecoin’s unlimited supply is a reason why it was so cheap, but it is not the only reason some altcoins are so cheap. In this edition of Ask CryptoVantage we will discuss some reasons why certain altcoins are so cheap.
Supply
We have already covered this to an extent with the Dogecoin example in the intro, but altcoins with an unlimited supply or an unknown max supply can still be quite valuable if there are processes that burn the asset and therefore prevent inflation.
The best example of this is Ethereum, which has no known max supply, but has mechanisms in place which keep its value up. Most blockchain companies look to avoid an unlimited supply when forming their project, but it varies greatly. Bitcoin has a max supply of 21 million, whereas Cardano has a max supply of 45 billion, but both are in the top 5 by market cap.
Project Age
Blockchain and cryptocurrency is one of the fastest moving industries in the world today, this results in two some altcoins being cheap for opposing reasons. Older projects can become obsolete, or lose a step to a competitor, and this has a negative impact on price, often resulting in very cheap prices. While this could be a buying opportunity if you believe in a project, it is often hard to recover especially if another crypto captures market share.
In contrast, new projects are often relatively unknown, and now that the days of big Initial Coin Offering hype has ended, it is not as easy to be a well-known project and generate demand for the cryptocurrency without there being financial merit. Projects that are flying under the radar will not be as expensive as those in the top 25, and there is no reason that a project that is not even on the chart when you discover its existence can succeed. An example of a crypto entering the market and immediately generating demand is Polkadot, which went from not being on the chart to an immediate top 10 asset once it was available to the public.
Utility
While there are many blockchain projects with good ideas, many of them fail to create a token or asset for their project that has true utility in the system. An example of this is Ripple because — while it’s a successful crypto — it is not actually necessary to use Ripple’s network. In order for Ripple to have utility, financial institutions would need to buy it as their reserve currency.
In contrast, an example of a project with a very useful asset is Cardano, as you can use stake ADA to earn interest, vote on project proposals for the blockchain, and hopefully soon you will be able to use it to provide liquidity to the coming Decentralized Finance projects that are building on Cardano as we speak.
Cardano is just one example of a crypto that has utility. Plenty of people use proprietary tokens on lending companies like Celsius Network, BlockFi and Crypto.com to gain higher rates of interest on their crypto. Meanwhile users of Brave Browser use the BAT token to reward content creators or even receive their own rewards for browsing ads.
There’s a good chance if a crypto has a solid use case then it will at least find some amount of success.
