Cryptocurrency and the technology behind it are still in their infancy, with many areas of the industry remaining a mystery to most. The rapid growth has been accompanied by scams and frauds, which have diverted investor money away from legitimate projects. But how can you know if you’re getting scammed?
Questionable marketing poses immediate questions
Marketing strategies, plans and budgets are all important pieces of a company’s puzzle. They help investors determine whether a cryptocurrency scheme has the potential to succeed, or if it is simply an attempt at scamming people out of their money.
When evaluating any new cryptocurrency project, you should ask yourself these questions:
- What is the company’s marketing strategy? What do they plan on doing with their budget? How will they attract new users?
- How much money has been spent so far? Is the team behind this project experienced enough to pull off what they are trying to achieve?
Who is behind the company/technology?
Before you invest, it is important to research the people behind the technology. Who is behind the company/technology? Is there a team of developers? Who are they, and what are their credentials? Is there an inventor or founder who has been involved with previous projects? What is their background? What are their credentials and experience in this industry or in similar ones? Also ask yourself: what reputation do they have within this community of investors and developers – both within and beyond cryptocurrency circles. Do they have a reputation for honesty and integrity when it comes to business practices like marketing or raising money from investors?
Asking these questions will help you determine how legitimate your investment might be.
Does the offering seem too good to be true?
If the company is offering a product that is too good to be true, it probably is not legitimate. It may also have little or no experience in developing, distributing or marketing its products and services.
If you are considering investing in an ICO or participating in any cryptocurrency scheme that promises huge profits with little risk, consider the following questions:
- Who are the people behind this company? Is there a public profile for them online and can it be verified as authentic?
- What do they say about themselves on social media sites like LinkedIn and Twitter? Do these accounts appear to be real or fake accounts created just for marketing purposes (i.e., bots)?
- Where are they based – where does their office exist physically and what kind of presence do they have at this location (e.g., physical address, phone number)? If there is no physical address listed but only an email address – beware!
Who is conducting due diligence?
The first question to ask is who is conducting due diligence on the cryptos in which they are investing. Is it a reputable broker-dealer, or are they relying on the blessing of an exchange that has already approved the crypto and therefore can’t be sued if anything goes wrong? In other words, who’s going to stand up for you if something goes wrong?
Be sure to ask: “Who is conducting due diligence on this cryptocurrency?” If there aren’t any names listed and no one will tell you who conducted their own research, beware. Why not provide this basic information?
Only invest money you are willing to lose.
How much money you should invest in cryptocurrency depends on your current and future financial situation.
If you’re investing a sum that would have a significant impact on your life, like paying off debt or saving for retirement, then it’s worth thinking twice before jumping into the market. While there is no guarantee that cryptocurrencies will succeed—or even survive—in the long run, there’s also no way to predict how far they could go if things keep going well for them (or if another crash happens). And even if it does crash again—which seems like an increasingly likely possibility—it might not be so bad: This time around, we all know what to expect, so perhaps we’ll all avoid making the same mistakes as last time around.
If you’re still unsure about whether or not crypto is right for you, ask yourself these questions before investing any money:
- How much do I have available to invest?
- Could I use this amount if something goes wrong with my investment? How quickly will I be able to recover if needed?
As we’ve seen, there are many ways to lose money on cryptocurrency schemes. When evaluating such opportunities, it’s important to be wary and ask questions. The answers may not always be clear, but asking the right questions can help investors avoid bad investments and scams alike.