9 things to look out for when investing in a new cryptocurrency
By Tyron Fouche
At Luno, every cryptocurrency we launch on the platform goes through a rigorous assessment process before making it available to our customers.
Below are a few of the ways you too can verify the legitimacy of a cryptocurrency before you invest.
1. What is the use case?
Explore the practical applications of the cryptocurrency project. Assess its relevance within its intended market and potential for adoption.
Understand the core objectives and goals of the cryptocurrency project. You can find a lot of this information in the white paper of a project. See, for example, the Bitcoin white paper.
2. Who are the founders?
Look at the founders and the team behind the cryptocurrency. Their expertise and experience can provide insights into the project’s credibility.
Anonymous founders can be a red flag.
3. Developer activity
GitHub is like a virtual hub where developers work together on computer software and keep track of changes to the code.
Santiment, for example, is a data analytics company that also tracks developer activity in various cryptocurrency projects.
The frequency and quality of GitHub commits can serve as a measure of a crypto project’s activity, transparency, and developer commitment, reflecting its overall health and ongoing development.
4. Competitor analysis
How does the project compare to competitors? Does it have any unique selling points that could give it an advantage over others?
5. Coin necessity
What is the function of the cryptocurrency in the overall project? Is it a gimmick to raise money? Or is it an integral part of the project’s ecosystem?
6. Performance
Review the historical price performance and market behavior of the cryptocurrency.
This can provide insights into its volatility, but remember, past performance is not a guarantee of future results.
7. Security
Are there any past security breaches or vulnerabilities related to the cryptocurrency? A history of security issues could indicate potential risks.
8. Is it decentralised or centralised?
Examine the distribution of validators and other governance mechanisms in its network.
Validators are participants in a cryptocurrency network that verify transactions.
With Bitcoin, these validators are called ‘miners’, whereas validators on Ethereum are known as stakers.
The smaller the group of validators, the more control lies with a small group of individuals or entities who have a say over what happens to the project.
9. Market trends
Understand the demand for the specific type of cryptocurrency you are considering.
Keep up-to-date on the broader market trends using tools such as the Luno Daily Briefing blog, which is updated daily with the latest news and trends from the cryptocurrency market.
By evaluating these factors, you can make informed decisions when investing and planning your long-term investment journey.
Investing in Crypto assets may result in the loss of capital. This information is not intended to be nor does it constitute financial, tax, legal, investment or other advice.
Before making any decision or taking any action regarding your finances, you should consult a qualified Financial Advisor.
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