In a world full of new cryptocurrencies launching almost every day, traders can get lost on what to buy. Traders can even get burned if they blindly follow finance news on what coins everyone else is buying. For example, if you held Solana or Shiba Inu during November 2021, you would be at a loss of between 50% and 75% of your position today.
This blog post will explain what you should pay attention to when buying cryptocurrency!
Background Check The Team
Team members are the public face of the project. Therefore they should be the first parts of the project you should scrutinize. Even if they are only known with pseudonymous handles, it is better than the members being completely anonymous because then there is public accountability if something goes wrong.
Check if the members have real social media profiles to establish a professional point of communication between them. Beware of projects using stock images as the team members' faces - this is a common technique used by scam cryptocurrencies because often, there is no team in the first place! Always reverse-search all profile pictures using Google Images before investing in an unknown cryptocurrency.
Make sure that you are satisfied with the level of expertise of the team members before buying their cryptocurrency.
Inspect the Whitepaper, Roadmap, and Mission Statement
Next, you should check the whitepaper, roadmap, and mission statement of the project. The absence of these items is a big red flag that it's a scam. If they contain mostly gibberish, that's also a red flag. Real projects have a sense of direction because their founders created them with a purpose.
Beware of "Pump & Dump" Coins
A Pump and Dump coin is a cryptocurrency that developers created solely to generate money for a handful of people, usually the team members. These coins ultimately have no market value, so you will never recoup a return on your investment.
The number of crypto traders in all parts of the world is rising as the promise of riches lures them after a massive bull run so that they can cash out for other currencies. Unfortunately, the very act of cashing out has a market effect that causes the cryptocurrency's price to crash. If everyone is selling their coin simultaneously, this leads to the asking price collapsing due to the large surplus of available coins. Thus, only buy coins that people are holding for the long term.
Manage your risk
First of all, do not buy a cryptocurrency that is listed on only one or two exchanges. Because if those exchanges collapse, you will lose all of your cryptocurrency. Only buy cryptos listed on multiple exchanges (at least 5).
You should periodically monitor the prices for extreme volatility and immediately liquidate if the prices fall too low. Unlike with established currencies such as Bitcoin and Ethereum, there is no guarantee that fledgling cryptocurrencies will rise to new highs again. Also, don't invest more than you can afford to lose.