Knowing what to research & what red flags to look out for are crucial before you invest into any crypto currency, i will cover some basics that i tend to do which help me decipher if a project is likely to have shady intentions from the offset or not, these checks literally take me a few minutes but can save you dramatic financial heartache
STEP 1 – COINMARKETCAP RANK
Check to see where the project is ranked, if a project is outside page 5 of CMC i am not interested as i deem it too high risk, anything outside page 1 the risk is multiplied against your favour & page 5 would typically be the cut-off point.
STEP 2 – MARKET CAP
This is an area where a-lot of people can get ‘caught out’ – you can research this too many levels but we shall keep it concise, generally a project with less than 100m marketcap will struggle to gain any traction in todays crypto market, you also want to pay attention to the circulating supply (how many coins are in circulation) you can take this a step further and check the relevant block explorer to see how many wallets are holding the supply amount, as an example Dogecoin > Robinhood is one of the top platforms for Dogecoin holders as it holds approx 32% of all DOGE coins, now imagine if this was a single private entity, they could theoretically crash the price at their whim. So to be extra cautious try to check that no single wallets hold majority of the coin supply (unless they belong to a custodial exchange)
Market cap needs to be $100m +
STEP 3 – VOLUME 24HR
Pretty self explanatory, there is no point in owning ‘Random coin’ even if your purchased at say $0.10c and then kit shoots up to $100 if the 24hr volume is not in the 10’s of millions at-least, you will own a crypto you cannot sell as their is not enough liquidity being traded and if by any chance you can see you will immediately crash the price, so ensure 24hr volume is at a respectable level that way you know people are actively trading that coin and you wont be left with something you cannot sell regardless of value.
STEP 4 – WEBSITE & SOCIAL MEDIA
Does the project have a website, Is it professionally done, are the founding members or the team linked and you can verify who they are? These are all small red flags which you can tick off relatively quickly, There is no real need to be anonymous in crypto unless you are a DAO even then the founders should be doxxed before handing over control to the community. Social media > Twitter is the platform of choice for Crypto projects, do they have a large following, if so does the interaction on the posts tally up to the follower count, if a project has 100,000 followers but only half a dozen people interact with posts, they are likely fake followers. Projects have cottoned on and taken a step further by buying bot followers who actually interact with posts, to counter this you can randomly check the followers and see if the profiles are new with no posts, this would indicate they are likely bot followers.
STEP 5 – DEX SCREENER
As an extra confluence you can visit a website called dexscreener.com which lists pretty much all decentralised cryptos which are available on platforms like Pancake-swap where you can buy, look at the chart, after listing has the price immediately crashed with volume > if so this is likely the founders selling off bags once their crypto is listed to unsuspecting retail buyers
There is also a section on the right where you click > MORE and that should bring up more research tabs like the ones listed below, they will pull up any red flags they see from hidden code to smart contract back doors where founders can exploit, well worth a look!
So there you have it my quick due diligence guide before investing into any cryptos, as always this is just a guideline of some of the steps that i do before i invest into any projects, by no means is this the full ‘check-list’ you should always try to research as much as you can to alleviate any red flags that occupy your thoughts.
Disclaimer: Not financial advice & investments should not be made based on the information in this article alone