Investing in recently launched cryptocurrencies may seem like a great opportunity, but it also carries considerable risks. Since those tokens have not been 'tested' over time, it is advisable to analyze various aspects before deciding to buy. If you are taking your first steps in the crypto world, understanding these factors will help you reduce risks and operate more securely.
In this article, as a guide, we explore the five main points to evaluate before acquiring new coins.
1. Thorough research of the project
Before investing in any recent cryptocurrency, it is crucial to thoroughly research the project that backs it. This step is essential to avoid falling into scams or assets without real growth prospects.
Three pillars to evaluate:
Whitepaper: The official document of the project, detailing the vision of the coin, its objectives, and the technology it employs. A well-prepared whitepaper with clear information is a good sign; the absence or lack of details may indicate something dubious.
Development team: Knowing who is behind the cryptocurrency is key. Projects with developers who have a background in blockchain or fintech tend to inspire more confidence. Investigate whether the founders have a solid history and if they have collaborated on relevant initiatives.
Objectives and applications: A cryptocurrency needs a defined purpose. Some focus on payments, others on smart contracts or services within an ecosystem. The more useful the project, the greater the likelihood of its adoption growing and, consequently, its value.
If you notice that any of these points has confusing or inconsistent answers, it is best to refrain from investing.
2. Price volatility: prepare for large fluctuations
Newly launched cryptocurrencies often show notably high volatility, which increases the risk of investing in them. This happens because:
Low market capitalization: At the beginning, most new cryptocurrencies have a small market value, which means that even moderate purchases or sales can significantly alter the price.
Speculation and hype: Often, newly launched coins experience rapid increases due to the initial enthusiasm of investors, but this euphoria can be short-lived and followed by sharp declines.
Whale influence: Large investors —also called 'whales'— have the ability to move large amounts of tokens and thus influence the price. In new projects with few participants, this effect is even more noticeable.
If you plan to invest in a new coin, it is essential to be ready to see how its price fluctuates sharply. Putting in capital that you cannot afford to lose can turn into an expensive mistake, especially in highly speculative assets.
3. Liquidity: will you be able to sell easily when you want?
Liquidity determines how easy it is to buy or sell an asset without excessively altering its price. In other words, a cryptocurrency with good liquidity facilitates quick transactions, while one with low liquidity makes it difficult to sell your holdings.
Some factors to verify:
Trading volume: Observe how much of the asset is traded daily. A low volume implies possible difficulty in finding buyers when you want to sell.
Availability on exchanges: Coins with low liquidity may only be listed on small exchanges, which are more susceptible to price manipulation and hindering exit.
Token distribution: Sometimes, most of the tokens are concentrated in a few hands, increasing price instability and the likelihood of manipulation.
When investing in coins with limited liquidity, you run the risk of not being able to sell quickly or at the price you desire. Be wary if the 'entry point' looks attractive, but the 'exit' seems narrow.
4. Regulatory compliance: avoid legal problems
Regulations on cryptocurrencies are constantly evolving. Betting on an asset that operates outside the law could lead to significant risks. Some countries have very clear rules regarding the purchase and use of crypto, so it is essential to understand that landscape before investing.
Points to consider:
Legality: Ensure that the project complies with the laws where it operates. Certain cryptocurrencies are considered illegal in some countries.
Legal transparency: Projects that inform about their compliance with regulations and that register with financial bodies generate more long-term security.
Risks of bans: Some new coins may face barriers in the future, reducing their growth or the value of the token.
If the project does not clarify its situation with regulators, that should be a warning sign for you.
5. Security on exchanges: where do you plan to trade?
The security of the platform where you buy and store your crypto is as relevant as the asset itself. The crypto market remains a target for hackers and fraud, so it is wise to verify that the exchange is trustworthy.
Crucial aspects:
Exchange history: Before trading, check its reputation. Has it suffered cyberattacks or withdrawal issues? Have there been users unable to recover their funds?
Security measures: Check that it offers two-factor authentication (2FA), protection against DDoS attacks, and cold storage for funds.
Liquidity on the platform: Some small exchanges may have low liquidity, slowing down operations and making volatility much more pronounced.
If you seek more security, consider moving your cryptos to personal wallets (hardware or software), which reduces the risk of losing them due to an exchange failure.
Is it worth buying newly launched cryptos?
Participating in recently launched coins can be exciting and, at times, profitable, but it requires caution. Researching the project, understanding its proposal, monitoring volatility, evaluating liquidity, checking regulatory compliance, and selecting a secure exchange are essential steps to reduce risks.
Also, always have a defined investment plan. Diversifying your portfolio, setting an appropriate budget, and avoiding putting in funds you cannot afford to lose are essential practices in the crypto sector. With these precautions, you will be better prepared to seize opportunities that arise in the market for new coins.
Do not let excitement carry you away: analyze carefully to avoid future headaches in the crypto world.
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