However, these unregulated currencies are very high-risk with a very low chance of reward. Penny cryptos are a lot like penny stocks, which are risky investments vulnerable to manipulation. Shutterstock - Scammy salesman with cigar.
In reality, most exchanges let you buy tiny fractions of a Bitcoin. To the financially savvy, there are warning signs everywhere. Everything about penny cryptos down to the name evokes the concept of penny stocks, the high-risk, low-value investments that Leonardo DiCaprio makes a fortune pushing in the beginning of The Wolf of Wall Street.
Penny stocks are vulnerable to pump and dump schemes, in which stock promoters push the price up and then sell their holdings, leaving regular traders holding the bag. Securities and Exchange Commission investing in altcoins Jay Clayton expressed horror this week at the concept of people investing in cryptocurrencies, citing the risks of hacking and high pressure sales tactics.
But the angst that boosters of penny crypto taps into is real.
People who passed on Bitcoin and then saw its price skyrocket can be afraid of missing out on the next opportunity. They flock to subreddits where they debate the merits of mining or buying the latest altcoins.