The cryptocurrency world has several red flags. In fact, with the rise in popularity of digital currencies, scams and unreliable designs have increased. Amateur investors can often fall into these traps. So how do we find these red flags? D-core, a firm of blockchain analysts and researchers, has some answers. He recommends investing in a currency only after rigorous verification of factual information. And if you smell danger in a project, it’s best to avoid it. Leaving it to a trial and error method isn’t going to help much in the long run.
Fundamental analysis is needed to make the right choices. Every aspect, from the world economy and encryption market trends to a project team, needs to be kept in mind to detect warning signs.
In a blog post, D-core highlighted some “resources for success”. The post also added that “forecasts in cryptocurrency rarely work” and urged investors to therefore “look for warning signs”.
The company also highlighted three main statistics:
- Only 16% of traders make profits.
- The average loss for a trader is 48.5%.
- More trades than don’t end at a profit, but the losses are often large enough to make up for this.
Apart from that, the blog post mentions some “areas to be evaluated” and “their respective red flags”. The mentioned tips include:
Tokenomics: Tokenomics is all about creating, managing and distributing a currency. Beware of projects that issue a very high supply of tokens with an extremely low value per coin. These could be red flags of meme coins. After several people invest in them, the project team starts burning tokens, making them scarcer and more valued. Also, be careful whenever teams are trying to change the behavior of a coin.
Scam Projects: Two fraud projects destroyed the cryptographic world – OneCoin and BitConnect. To avoid fraudulent designs, always analyze the actual value and use case of coins. If the project is not used for any real purpose other than making money through profits, it is likely to fail. That’s what happened with OneCoin and BitConnect.
For example, Chainlink’s Oracle technology takes external data and feeds it into blockchains. This is more than just making money and has many applications, from economics to healthcare, telecommunications, governance and more.
Decentralization: You should not choose any and all cryptography projects that have real-world use. Weigh and see if the project is useful in the world of digital assets. Otherwise, the project may just be a way to attract capital. Check whether the currency is achieving a desirable degree of decentralization. Learn how to check a project’s code to ensure it’s solid. Or get acquainted with the auditors to find out if a third party has verified them.