This video Four Red Flags for Altcoin Investing focuses on the danger signs you should look out for when deciding to buy cryptos. Our resident expert Chris Long shares his thoughts when choosing the right altcoin to buy on video.
Today I want to talk about some red flags you should look for when you are altcoin investing. Most people know altcoins as cryptocurrencies that are not bitcoin.
What they fail to understand is that not all altcoins are not created equal to bitcoin.
Most of these altcoins should have businesses or companies behind it.
A little like venture capital investing, because a lot of these companies and these teams are very young. They have no cash flow, no revenue or profit.
What they do have is a great idea, and they want to implement that idea. So some of the red flags I look out for is that first of all, that anything that is cryptocurrency related, they have programmers and developers working behind it. Usually the more legitimate ones or the ones that are more welcomed by the market, they are open-sourced where their codes are listed on Github.
So the first thing I would like to check is if they have empty repositories for these open-sourced projects. If they are empty, then I tend not to favour it. If they are, I tend not to favour it as much as having the code open source.
(Both Git and GitHub refer to this as a repository, or “repo” for short, a digital directory or storage space where you can access your project, its files, and all the versions of its files that Git saves. … A Readme file is usually a text file that explains a bit about the project.)
Second, the team. I am investing in a new company and a new project. I have no cashflows (to do valuation); there’s no regulation protecting me. So what I’m banking on is the team. If the teams that are coming up with ICOs that are not well-known or perhaps the team is anonymous, or perhaps a big ICO with big promises but there is only one guy on the team. So this is not something that would be favoured by me, so I tend to back away from these things.
If you are looking to invest into ICOs, I suggest you research the team. Who are the guys who are developing the blockchain? Who are the guys who are developing this project?
Do they have any bad history? One of the easiest ways to do it is to do a google search on the name and add a ‘scam’ behind it.
Insufficient Information on Whitepaper and Website
The third thing is whether they have enough information on their whitepaper and their website. For ICO or altcoin to be legitimate, they should have a proper whitepaper and website that details their goals and their roadmaps that they’re trying to achieve with this ICO.
If not, it’s just a fundraising project.
Overhyped Promises or Guaranteed Returns
The last thing is that we want to know and understand what is the promise the company is making. If it is an overhyped promise – like giving 300% in guaranteed returns.
Or if they promise like, if you refer someone you will get 50% off, like an MLM structure.
These are not very favourable as well. I tend to avoid companies like this.
Last year, there was one such project called Bitconnect (BCC). It offers you a great return based on an algorithm. Anyone that you refer, you’ll be able to make off their returns as well.
For me, that was a red flag.
(The coin crashed over 90% in January 2018 in a single day)
So these are the four things, just as a recap.
- Empty Repository
- Anonymous Teams
- Insufficient Information on their Website or Whitepaper
- Overhyped Promise and Guaranteed Returns
If you have any questions? Leave it in the comments below!