Cryptocurrency Trading: What Are Some of the Red Flags and How to Spot Them

Cryptocurrency world has several red flags. In fact, with a rise in the popularity of digital currencies, scams and unreliable projects have increased. Amateur investors can often fall for these traps. So, how do we spot these red flags? D-core, a firm of blockchain analysts and researchers, has some answers. It recommends investing in a coin only after a rigorous check of factual information. And if you sniff danger in a project, better avoid it. Leaving it on a trial-and-error method isn't going to help much in the long term.

Fundamental analysis is required to make the right choices. Every aspect, from the world's economy and crypto market trends to a project's team, needs to be kept in mind to spot red flags.

In a blogpost, D-core has highlighted a few “resources for success”. The post also added that “predictions in cryptocurrency seldom work”, and asked investors to, therefore, “look for red flags”.

The company even highlighted 3 main statistics:

1. Only 16 percent of traders achieve profits.
2. The average loss of a trader is 48.5 percent.
3. More trades than not are completed at a profit, but losses are often big enough to offset this.

This apart, the blog post mentions a few “areas to evaluate” and “their respective red flags”. The 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 value per coin. These may be meme coin red flags. After several people invest in them, the project team starts to burn tokens, making them more scarce and more valued. Also, beware whenever teams are trying to change a coin's behaviour.

Scam projects: Two scam projects have scathed the crypto world — OneCoin and BitConnect. To avoid scam projects, always analyse the real value and use case of the 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. That's more than just making money and has several applications, from economics to healthcare, telecommunications, governance, and more.

Decentralisation: You shouldn't choose any and every crypto project that has a use in the real world. Weigh and see if the project is useful in the world of digital assets. If not, the project may just be a way to attract capital. Check if the coin is achieving a desirable degree of decentralisation. Learn to check the code of a project to ensure that it's solid. Or familiarise yourself with auditors to know if a third party has checked them.