A retail investor’s love for penny stocks is driving cryptocurrencies to trade in high decimal places. Digital token Shiba Inu was worth nearly $0.00004893 on Friday, while the Dogecoin cost less than a cent earlier this year. The SafeMoon is worth about $0.00000348.
A Bitcoin’s satoshi is the smallest unit of the bitcoin cryptocurrency and is 0.00000001 unit of the digital token. Then there is the wei – That’s 0.000000000000000001, or one quintillionth of an Ether.
Retail traders believe that even a small unit of a Shiba Inu or Dogecoin would attach them to the success of other digital tokens like Bitcoin and Ether.
“There’s a psychological element here, in many cases, where people think, ‘Oh, a whole Bitcoin is $65,000, but one Dogecoin is only 25 cents,” Halsey Minor, executive chairman of blockchain platform Public Mint, told Bloomberg, adding that retail investors are ploughing money into these digital coins as they look cheap.
According to the Bloomberg report, there are many reasons for dividing a token up to 18 decimal places. In theory, a token has the potential to rise in value to all those decimal places.
“Many researchers in the space have agreed that the 18-decimal standard for ERC20 (Ethereum) tokens is pretty arbitrary and likely not ideal,” said Arjun Bhuptani, the co-founder and project lead of Connext.
“Decimalisation on Dogecoin and on Shiba was actually the best marketing thing you could ever do, basically, because nobody wants to buy 0.01 Bitcoin, but everybody wants to have millions of Shiba,” said Jonathan Azeroual, vice-president at crypto exchange platform INX. “Why? Because they think somehow, one day, maybe that thing will go to $1,” he added.
This psychological effect is what is driving some traders to quote prices for satoshis, rather than a full Bitcoin.
For digital currency platforms, there is a tradeoff. The numbers can be divided infinitely, but computer hardware finds it difficult to store infinite data, leading to platforms and tokens breaking away from the 18-decimal standard. The stable coin Tether, for example, uses only six decimals, which is a lot for a coin worth nearly $1.
This also tasks the cryptocurrency platforms from showing decimal precision.
Bitcoin trading platform Kraken has done away with pennies and limited orders to dime increments.
“A lower price precision can help order books operate more efficiently by reducing the volume of cancelled (unfilled) orders as traders continually jump in front of each other by small fractions in price,” Kraken says on its website.