How to Distinguish Crypto Hype from the Promising Coin
Thousands of cryptocurrencies and tokens keep popping up on the market all the time. Therefore, it’s not always possible to figure out in which asset to invest your hard-earned cash. However, some things can help to spot a “pumped” coin, as most of them have similar traits.
Experience and credentials of founders
Before making an investment in a novel project, you should check out whether the project founders have experience in IT, finance or cryptography. It’s also worth digging whether they are telling the truth. You should make inquiries about people behind the project and gather information on each team member.
It’s not a universal solution, of course, as we can recall a number of instances where the founders of major significant projects dropped out of colleges and universities to work on their creations. Some of the creators of well-known cryptocurrencies were in their teens (for example, Vitalik Buterin).
Moreover, it’s hard to deny the fact that lots of projects can appear out of nowhere, because venture capital companies are looking for future employees on social networks or on the GitHub service, where developers can work on code together.
Access to cryptocurrency code
Most legitimate cryptocurrency projects make their code open and every user can read it, check or even edit if needed. Surely, not all founders of legitimate cryptocurrencies publish their code and make it available for everyone, but scam projects almost certainly will try to hide it. Few potential investors have knowledge of programming languages to decipher the cryptocurrency code, which effectively keeps the digital asset running. But if the creator of any coin firmly declines access to its source code – that’s the pretext to question its credibility.
Most countries still haven’t introduced clear-cut norms and regulations for digital currency. El Salvador remains the only state that has recognized bitcoin as legal tender. However, all cryptocurrency projects should have appropriate license granting the right to trading operations. For example, in USA the licensed are issued by US Securities and Exchange Commission (SEC). As for the exchanges, they also must be officially registered and possess relevant supporting documents.
If the project is not licensed, it can’t be guaranteed that the operations with cryptocurrency are safe and sound.
The storage of assets
What’s more, you need to pay special attention to the custodian service, which offers secure storage and insurance of cryptocurrencies. The following services are considered the most reliable:
- Bakkt Warehouse
- Coinbase Custody
- Fidelity Digital Assets
- Gemeni Custody
Fraudsters and scam-projects often attract investors with fake promises about quick return. From the outset, you need to go to great lengths to parse the project, familiarize yourself with the White Paper and evaluate the feasibility of those promises.
Trading volume data should come from a reliable source. It can be an aggregator site (for example, Coinmarketcap) or an actual exchange which offers cryptocurrency trading.
Initial coin offerings or cryptocurrency presales attract hundreds of enthusiasts. Here it’s crucial to understand if they are real people? Also, try to uncover their end game. Are they interested in the value of the technology or the growth of the course?
It’s best to stay away from dubious coins because to avoid the risk of losing everything. Deceitful startups take advantage of the deficient crypto regulation and create full-fledged pyramid schemes.
You need to give an appraisal to the ownership structure of the cryptocurrency or token. It’s strange when most of the coins are stored at one or two addresses. Also, check if the market is overloaded with a new asset. This can reduce investor interest as well as demand for the digital currency.
Finding a promising cryptocurrency is a sort of an art. When in doubt, take another look at the coin’s prospects. Maybe they really are too good to be true.