How to avoid getting scammed by cryptocurrencies

Are you still getting your feet wet in the realm of cryptocurrencies? Or perhaps you’ve been trading crypto for a while now but you’ve yet to see the amazing gains so many others have enjoyed? If so, then participating in an Initial Coin Offering (ICO) has probably crossed your mind.

It seems that every month, several crypto startups are launching their ICOs. But not all ICOs are the same, and you’d want to steer clear of those that only disguise themselves as the future of crypto.

Why ICOs have a bad rap

ICOs have been the center of regulatory talks for a while now. In case you didn’t know, an ICO refers to the time when a startup sells tokens to raise money for developing or scaling their product. Many investors are compelled to join since most crypto projects promise outstanding returns both in the short- and long-term. It’s not uncommon to find coins claiming to be the next Bitcoin, hoping that people would jump at the opportunity to get their coins at low prices.

The thought of buying the next Bitcoin and growing your investment exponentially can prove tempting for any investor. Also, Bitcoin itself might appear too pricey for new investors, which drives them toward new coins that show the potential of growing in the future. Ideally, you’d want the demand for the new coin to increase and for people to start trading it on Bitcoin Trader or other cryptocurrency trading software to increase its price. Unfortunately, many of these ICOs take advantage of the ignorance of new investors and lure them in by making unrealistic promises. But how exactly can you tell what coins to avoid?

Telltale signs of a bad ICO

  • Anonymity of founders and members – Most fraudulent coin projects do not publicise the names of the founders, developers, and members. Sure, nobody knows for certain who Satoshi is. But new cryptocurrencies can’t get away with being anonymous any longer. If the founders cannot stand behind their work, then you’re better off keeping your money.
  • Guaranteed return on investment – To compel you to buy as many coins as possible, the coin developers might tell you that there’s no way to lose your money because of the guaranteed return on investment. Remember that even the most established coins in the market can lose value. Any project that eliminates this risk shouldn’t be trusted.
  • Too much hype – It’s always helpful to ask yourself why you’re interested in participating in the ICO. Is it because the project is backed by an incredible team of developers? Do they exemplify excellent business fundamentals? Or maybe their sales pitch is just too convincing? If you notice that the marketing involves too much hype, the coin probably isn’t worth investing in.
  • Unclear use cases – Every successful coin has a clear purpose. In Bitcoin’s case, it addresses the problems of government manipulation, centralization, and inflation. What’s the function of the new coin you’re interested in? Don’t feel satisfied by any vague function or role mentioned by the developers. Never invest in a coin that probably wouldn’t have any real-world use cases.
  • Target amount in the ICO – The amount of money the startup wants to raise in the ICO can also serve as a clue to their credibility. You need to be extra careful here since it’s difficult to tell for certain what makes a reasonable target. Look at their product and do your own research so you can have an informed decision on whether to support their ICO or not.