So you’re ready to try your hand in the cryptocurrency market, and have decided to jump in with an investment on an up-and-coming new currency? That’s not a bad idea nowadays, especially if you’re savvier on the technological side and know how to do your own research, but there are some potential pitfalls to be aware of. Most importantly, the rise of attention towards cryptocurrencies has also drawn many less scrupulous entrepreneurs with an active interest in taking your money and giving you nothing for it.
It’s a good idea to know what the most common warning signs of a potentially problematic ICO are, so that you can properly analyze each investment you’re making and know when it’s time to step away and look at something else.
Lack of openness about the people running the show
This one should be obvious, but you’d be surprised how many people fail to properly research this part of the ICOs they’re investing in. Simply put, any company worth its salt should be represented by people who are completely open about their identities and the goals they’re pursuing with this project.
Do your own research here – don’t just trust what they’re writing about themselves on their own site. Look up the name of each person running the project and see if they have been involved in anything suspicious. Don’t just stop at the first few names either – a common tactic among scammers is to push the owner with a less than stellar profile back to dissuade people from looking them up too often.
Links to other failed projects
Has any of the owners been involved in a project that’s had its public trading suspended or anything along those lines? Did they try to promote another cryptocurrency which ended up crashing? Certain kinds of activities are not illegal but they should definitely raise an eyebrow when researching the people behind the project if these factors start popping up too often.
No clearly defined goal for the current project
What is this new cryptocurrency trying to achieve? Look for a manifesto or any other document outlining the long-term plans of the project and how the creators plan to keep it afloat. The cryptocurrency market has become incredibly saturated recently, and simply having a new currency alone is far from enough to make a good impression.
It’s important that the project is actually trying to solve some new problem, or attacking an old one from a new angle. People have come up with some quite interesting applications for cryptocurrencies lately, such as distributed computing and other complex tasks, and the sky is the limit right now. With that in mind, don’t invest in something that will likely draw no real interest and will fade away in just a few months after nobody pays attention to it.
Of course, it takes some knowledge of the tech market to know which currencies have a real chance of succeeding and which ones you can probably safely ignore, which makes it important to have a reliable partner who can guide you in this regard if you don’t have the necessary experience yourself.
Overconfidence with no visible backup
Another common warning sign to look for is if the company is being too generous in issuing shares to interested investors, but at the same time it doesn’t look like they are making any significant progress in their actual business operations. This could indicate that they are trying to run a quick scheme and disappear from the market, although in some rare cases it could also signify that there is somebody with a deeper pocket behind the scenes trying to get the project off the ground quickly.
More often than not though, this is something to stay away from, especially if the company’s owners don’t seem to have a very active portfolio on the cryptocurrency market in the first place. When somebody is showing that much confidence in their project, they must have the corresponding level of experience and past involvement to back it up, otherwise you’re probably looking at something shady.
The company frequently changes its structure
This is another somewhat obvious sign which gets largely ignored for some reason, but it’s just as important to stay aware of it if you want to avoid making a bad investment. If you find out that the company has actually been on the market for a long time but has gone through multiple different names, executives and top-level managers, this rarely indicates anything good.
There are pretty much no legitimate reasons to do something like that, and it almost always says that the people behind the project are trying to cover their tracks from something they’ve done in the past. And when the exact group of people behind the project keeps changing on such a regular basis, it can get very hard to make an informed decision about the legitimacy of the whole thing.
Minor sign: no community engagement
We put the “minor sign” warning in the title of this one because it doesn’t necessarily have to indicate a problem. Sometimes these projects are simply run by people who don’t like to make their current affairs that public and as a result don’t communicate with the people interested in the project all that often. But this doesn’t have to automatically mean that the project is a scam, it could simply be headed by people with slightly outdated views of how to run something like this.
This could be a bit of a warning sign itself, but it’s definitely not a reason to be alarmed if everything else about the project looks clean. As long as they’re keeping their cards on the table and there are no signs that something else might be happening behind the scenes, you can probably chalk that one down to lack of experience with running a project with an Internet community, and you may even look into giving them some pointers if you feel more inclined.