Cryptocurrency trading: what are the red flags and how to spot them
The cryptocurrency world has several red flags. In fact, with the increase in popularity of digital currencies, scams and unreliable projects have increased. Amateur investors can often fall into these traps. So how do you spot these red flags? D-core, a firm of blockchain analysts and researchers, has some answers. He recommends investing in a coin only after careful control of the factual information. And if you smell danger in a project, you better avoid it. Leaving it on a trial and error method isn’t going to help much in the long run.
Fundamental analysis is necessary to make the right choices. Every aspect, from the global economy and crypto market trends to a project team, should be kept in mind to spot red flags.
In a blog post, D-core highlighted some âresources for successâ. The post also added that “cryptocurrency predictions rarely work”, and asked investors to “look for red flags”.
The company even highlighted 3 main statistics:
- Only 16% of traders make a profit.
- The average loss of a trader is 48.5%.
- More trades than not are made at a profit, but the losses are often large enough to make up for that.
That aside, the blog post mentions a few âareas to reviewâ and âtheir respective red flagsâ. Pointers mentioned include:
Tokenomics: Tokenomics has everything to do with the creation, management and distribution of a coin. Beware of projects that issue a very high supply of tokens with an extremely low coin value. These can be red flags of coins. After several people invest in them, the project team begins to burn tokens, making them rarer and more valuable. Also be careful any time teams try to change the behavior of a room.
Fraudulent projects: Two scam projects have ravaged the crypto world: OneCoin and BitConnect. To avoid fraudulent plans, always analyze the true value and use case of coins. If the project is not used for a real purpose other than making money from the profits, it is likely to fail. This is what happened with OneCoin and BitConnect.
For example, Chainlink’s Oracle technology takes external data and feeds it into blockchains. It’s more than just making money and has multiple applications, from economics to healthcare, telecommunications, governance, etc.
Decentralization: You shouldn’t choose just any crypto project that has real-world utility. Weigh and see if the project is useful in the world of digital assets. If not, the project may just be a means of attracting capital. Check if the room achieves a desirable degree of decentralization. Learn how to check a project’s code to make sure it’s solid. Or familiarize yourself with the auditors to find out if a third party verified them.