Penny Stocks and the Coinbase IPO: What Cryptocurrency Has to Do With Small-Cap Stocks

Why Penny Stock Investors Are So Excited About the Coinbase IPO and Its Implications  

Do penny stocks have anything to do with cryptocurrency? This is a question that might not be asked often, but it could help to build a new way of thinking. One of the best ways to stay ahead of the competition when investing is by thinking outside of the box. As it pertains to stocks, this means considering all of the aspects that control the price of a company.

Because cryptocurrency and penny stocks are both so popular right now, drawing parallels between the two could help to give you an edge no matter what type of trading you do. Before we get into the similarities and differences, it’s worth looking at what is going on in the stock market right now to identify potential investing trends. 

On one hand, we have the Coinbase Inc. (NASDAQ: COIN) IPO. Initial price targets put this IPO at $250. But shortly after trading commenced, shares shot up to over $429. Outside of this being a plus for short-term traders, it shows that crypto is here to stay. 

The COIN stock IPO is also a major win for all those who have been touting Bitcoin and Altcoins for years. It is the first and most likely not the last, pure-play crypto company to be listed on the NASDAQ. For this reason, we can consider the cryptocurrency market to be as legitimate as any other. Moving forward, what does the crypto industry have to do with small-cap stocks? Let’s take a look.

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What Does Cryptocurrency Have to Do With Penny Stocks?

1. An Overview of Cryptocurrency and Penny Stocks  
2. Penny Stocks and Cryptocurrency Can Be Volatile 
3. Small-Cap Stocks and Altcoins, What’s the Difference?

1. An Overview of Cryptocurrency and Penny Stocks 

Cryptocurrency

Cryptocurrency is a decentralized and digital way of transferring currency. The backbone of all cryptocurrencies is something known as blockchain. Blockchain is a system of contracts known as ledgers, that are verified and maintained in a decentralized digital system.

This system uses what is known as cryptography to keep everything secure and transparent. Because it is decentralized, anyone, anywhere with access to the internet, can buy and sell cryptocurrency. In addition, the accessibility means that there are thousands of different ‘coins’ out there.

These range from the popular ones like Bitcoin, Ethereum, and Dogecoin to altcoins like Cardano and Monero. The concept behind blockchain allows for both financial contracts like paying for services and products as well as newer uses like NFTs (non-fungible tokens) and others. While this may sound confusing, that’s because there are a lot of layers to cryptocurrency. But, this should help to give a basic understanding of what it is. 

Penny Stocks 

What are penny stocks? These are any security traded under $5. It’s as simple as that. However, there are some nuances to consider. While many penny stocks are traded on popular exchanges like the NASDAQ or NYSE, the majority of them are traded on OTC or over-the-counter markets. This is due to the stringent listing requirements and costs associated with listing on a large exchange. 

Because of their relatively cheap prices, investors often view penny stocks as short-term assets. However, it’s worth noting that there are small-cap stocks that shoot past the $5 mark regularly. While stocks at this price point can be riskier than higher-priced securities, each company carries its own risk profile. For this reason, it’s important to conduct thorough research into every company on your watchlist.

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Additionally, penny stocks can have lower volume than blue-chip stocks. This can affect liquidity or the speed and price of buying and selling. While this is not something to worry about, it should be kept in mind. 

2. Penny Stocks and Cryptocurrency Can Be Volatile 

One of the largest common factors between cryptocurrency and penny stocks is volatility. Volatility means the frequency at which a price goes up and down. With cryptocurrency, volatility is highly driven by speculation. for example, when Elon Musk tweeted about Doge Coin a few months ago, prices quickly shot up in double-digit percentage points. With penny stocks, volatility is often driven by a balance of speculation and fundamentals. In an interview with the Economic Club of New York, Fed. Chair Jerome Powell Gave a statement on cryptocurrencies.

“They’re really vehicles for speculation. They’re not really being actively used as payments. For thousands of years, humans beings have given gold a special value that it doesn’t have.” 

Federal Reserve Chair Jerome Powell

These comments came as Coinbase listed on the NASDAQ, opening at $381 per share. And while Powell may be right to some degree, we have to give some credit to how far cryptocurrencies have come in the past five years. 

While popular cryptos like Bitcoin can be used as payment in some scenarios, the uses of cryptocurrency are not nearly where they could be. Many analysts expect the applications of cryptocurrencies such as Bitcoin to increase greatly in the coming years. But for now, it seems as though speculation is one aspect that is holding back widespread crypto adoption. 

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With penny stocks, volatility comes with the territory. And because investors often swing trade small-cap stocks, volatility can be a great asset. Some penny stocks fluctuate more than others, but overall investors consider these stocks wholly to be volatile. This commonality between the two could help in understanding the similarities between low-priced securities and digital currencies. 

3. Small-Cap Stocks and Altcoins, What’s the Difference?

Small-cap stocks and Altcoins differ in a few distinct ways. The main one being; how they are in use. Small-cap or penny stocks are in use as an investment tool first and foremost. Altcoins, on the other hand, can work as both a digital currency and an investment. 

While the two can share similar price points, there are certain requirements for penny stocks that Altcoins do not have to follow. For any company to be publicly traded, documents need to be filed, legal measures need to be taken, and certain information needs to be disclosed.

With Altcoins, there are no requirements for creating a cryptocurrency. If you want to create your own coin, within 15 minutes, you can utilize an ERC-20 token platform to launch a coin on the Ethereum blockchain. New coins and platforms come out every day meaning that the world of Altcoins is always growing. 

While most of these go unnoticed and have little to no notoriety, the main idea here is that anybody with access to the internet can create a cryptocurrency. This is not at all the case with penny stocks. 

The main difference here is legitimacy. That’s not to say that all penny stocks are completely legitimate and that all Altcoins are illegitimate, but rather with penny stocks, the underlying business information will always be available. 

In Conclusion 

There are some obvious and not so obvious differences/similarities between penny stocks and Altcoins. Knowing the difference can help to define an investing strategy, or simply better understand the two. 

Additionally, the parallels between the two have helped to bring new investors into the stock market, searching for cheap stocks to watch. With the world moving faster than ever, the uses of cryptocurrency continue to develop every day. Considering all of this, what conclusions can you draw between the two?

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