Because the crypto sector has so many token options, investors find themselves spoiled for choice and possibly overwhelmed. This is made worse by the fact that token creators, in a bid to advertise their projects, often resort to hyperbole. Every new token is seemingly the next bitcoin and every new project is going to the moon.
If you are an investor trying to fill your portfolio with new tokens, you’ve probably come across this in the past. But how do you tell if a crypto token is legitimate, much less on the road to success? Here are a few questions to ask yourself.
Who is Behind it?
One of the first things you’ll want to know is who is behind the token. After all, several people have a reputation in the industry that inspires trust among investors. Charles Hoskinson, for example, had worked on Ethereum before becoming the founder of Cardano, which meant that many investors had faith in the project. As such, you should confirm the team behind any token you are considering. Are the experts in the field? Have they fronted successful cryptos in the past? Are they known to be scammers?
Another thing to keep in mind is that while there is a horde of successful cryptos founded by anonymous creators, it is probably safer to have some idea of who is behind it.
Is it Endorsed by the Industry?
If you’re unsure of whether or not a crypto is legitimate, it is best to go with the consensus from the industry. for example, a token listed on a major exchange like Binance or Coinbase is quite unlikely to be a scam. this is because they go through a rigorous review process before they are listed, so buying them off illegitimate exchanges makes your transaction safer. It also means you’re more likely to make a profit.
As Marina Avramovikj writes, Binance’s next crypto stars are predicted to do well in the market and this makes them likely a better option for investors. However, if the token is not being listed on any legitimate exchanges, you might want to be wary of it.
What Are Its Use Cases?
Another way to separate the width from the chaff when it comes to cryptocurrencies is to look at the potential use cases. Ethereum has retained its value because its underlying blockchain powers so many projects in the industry. XRP remains popular thanks to cross-border transactions. So, before you rush to buy any token, no matter its hype, ask yourself what exactly it is going to be used for. If it has provable use cases, it probably is a decent investment. However, if the project has no tangible use cases beneath all of the hype, you might want to think twice.
What Does the Public Think?
Over the years, the crypto-buying public has become fairly adept at spotting crop tokens from afar. Several tokens that have gone on to succeed were backed by the industry early on. On the other hand, several scam tokens were clocked by crypto investors very early. So, if you’re unsure about whether or not a crypto is legitimate, find out what the general consensus from the community is. Search the name of the token on Twitter/X, look through crypto-focused forums, and read crypto-centered publications. If the general consensus is that the token is legitimate, it might be safe to proceed. However, if the industry-wide opinion is that it is a crap token or possibly a scam, you might want to take that seriously.
How Has it Performed So Far?
While we can speculate about the legitimacy of a token before it hits the market, its performance afterwards will reveal its value to the community. If the token you’re considering has been in the market for a while, look at its trajectory so far. It is not unheard of for a token to have a high debut, only to see a massive price decline soon after. Visit platforms like CoinMarketCap and see how well the token has done so far. If it has consistently delivered returns over several months or years, it is likely a legitimate token. If it is very new or saw a steep decline soon after launch and hasn’t recovered, it is likely a poor investment.
Is it Well-Executed?
The profitability of the crypto space has meant that many entrepreneurs rush to launch tokens without doing proper research or putting enough effort into their execution. Take a look at the project whitepaper and website. Do they look professionally designed? Or do they look shabbily thrown together at the last minute?
Take a look at all the marketing materials related to the project and ask yourself if enough effort and care went into it. A project that cannot even publish a decent whitepaper is not likely to do well in the market and could even be a scam. These might seem like small details, but they offer insight into the quality of the project overall.
