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10 Ways To Recognize Scams And Protect Yourself
Did you know it is estimated that 98% of ICO’s are considered scams?
Did you know that most mining is not profitable?
Did you know that most new coins are nothing more than pump and dump schemes?
With all the fraud in the cryptocurrency market, is there really any opportunity to profit? Yes, as long as you do your research and stop listening to all the “experts” who are nothing more than the latest generation of snake oil salesmen.
Protect yourself and others with these 10 tips to reduce your risk:
Does the new coin or opportunity guarantee you a return? Any opportunity that can guarantee any type of a return is probably a ponzi scheme. Stay Away.
Is the management team clearly listed on the website? Go to LinkedIn and type in their names. Are they part time? How long have they been in cryptocurrency? Does the team have a mix of developers and business people? Was their last venture profitable? Check Google as well.
Are they focused on developing a single solution or does it list a hodge podge of random ideas? Most teams have finite resources, so you want to find ones that are solely focused on bringing one good idea to market.
Do they have a clear roadmap of deliverables and have they met the timelines established? Also, make sure the deliverables are more than a website and white paper.
Is the website well thought out and informational? Be wary of ones with quotes about cryptocurrency from famous investors, entrepreneurs or technologist, unless it specifically mentions the company by name.
Does the white paper provide project details or is it mainly high minded ideals and sales copy?
Does it solve a real world problem where decentralization makes sense? Not every business needs a blockchain.
Look at their GitHub. Is there activity on it? Have they made any commits? You don't need to be a technology expert to determine if there is real effort being put into development.
Join their Telegram, Reddit and Discord groups. If they don't have them, stay away. In the groups: first, ignore the hypesters, you want to find the FUDsters (Fear, Uncertainty, Doubt). There will be two types of them: 1) the baseless claims: ignore them 2) the ones who present rationale arguments against the project. Study those more closely to see if they are accurate. When Bitconnect was at its peak, there were plenty of people says it was a ponzi scheme, but they were ignored or chided for missing a great opportunity. What happened? Head of Bitconnect arrested in Dubai. This is just one of thousands of stories, but the most recent arrest.
Lastly, listen to people who have been in the market for more than a year or two. Real cryptocurrency people are not trying to sell you an opportunity to get rich. They will educate you on it, so you can make good decisions for yourself and will probably give you an unbiased opinion based on their experience. They have seen the cycle repeat itself too many times. We want to see cryptocurrency succeed and the best way to do that is by educating people to avoid the scams that give it a bad rap.
Bonus: if you are considering mining ask the following: what is the hash rate of the pool, where is it located (looking for cheap electricity), what has been the historical number of blocks found per day? These are basic questions any of them should be able to answer.
Remember, never invest more than you are comfortable losing even if you think it has potential and meets the criteria. The technological landscape is evolving quickly and even a good idea could be obsolete tomorrow. Good luck and welcome to the exciting world of cryptocurrency.
Let me know your thoughts? Any tips I missed?
Crypto Isn't Much Of A Bubble
Everywhere you go it seems that people are discussing cryptocurrencies. Most people are divided into one of two camps; it's either a bubble rivaling the Tulip bubble of the 1600's or poised for a massive run-up to the next all-time high (ATH). I do not think either of these views are accurate and the truth is somewhere in the middle. For this discussion, I am going to focus on Bitcoin, since its market cap accounts for 50% of the total crypocurrency market.
How Big Is It?
A colleague sent me this article yesterday that puts the size of the various markets into perspective. The whole cryptocurrency market is that dot on the in the top of the diagram.
Today, the market cap of all cryptocurrencies is roughly $300B, compared to the dotcom bubble, at its peaked, was at $3T before crashing in 2000. That means crypto today is only 10% the size of the dotcom bubble at its peak. I talk about this more in my previous post on the Age of Money Revolution.
When anyone talks about systemic risk, it is pretty clear that market is not big enough, at this time, to pose a significant risk, and the Federal Reserve has stated this conclusion as well, in May 2018, "Overall, however, the still relatively small scale of cryptocurrencies in relation to our broader financial system and relatively limited connections to our banking sector suggest that they do not currently pose a threat to financial stability."
Number of People Involved
Is everyone really getting involved in crypto? The short answer is NO. In fact, the number of people that actually own and do any type of transactions is quite small. In 2017, the number of bitcoin wallets increased 2X, from 13.7M to 27.7M. Assuming that each holder has at least 2 wallet addresses, one cold and one hot, then it can be concluded less than 14M people globally (about 0.32% of the global population) have bitcoin.
How Much In Avg Wallets?
As January 3, 2018, slightly over 50% of all wallets had less $3.00, 75% had less than $73.00 and 90% had less than $539, so even though everyone is talking about, very few actually own any and the value of coins, per wallet address, is overall very small. A point of note: the exchanges do hold the largest wallets, so the actual number of people and amount held per individual is probably slightly larger, but it is difficult to draw any conclusions. I would hope that anyone with significant holdings follows my previous advice and has moved most of it off of an exchange to a wallet they own.
HODL Waves
On of my favorite graphs, HODL Wave, was developed by Unchained Capital. The graph shows the time since the last UTXO (unspent transaction output or last time the coin was spent/created). In July 2018, you will notice that about 8% of all bitcoins in existence were traded, and during the frenzy of August 2017, it peaked at 24%. Further, roughly 18% of all coins did not move in 2017, even with the market hitting an ATH.
Cryptocurrencies are one of the only assets classes where this type of information is possible, due to the public blockchain.
Bringing It Together
Regardless of all the headlines and people talking about cryptocurrencies the actual number of people that own crypto is relatively small and the size of the market cap pales in comparison to even the next largest one, Gold.
This is why I conclude that we are not in mist of a bubble, nor significant price increase due market demand. If I were to lean either direction, I would speculate that we have significant opportunity in the next 24-48 mo's for the demand to increase, as more people get involved, and thus higher prices and a larger market cap.
Where do you see prices and market cap heading? Share your thoughts in the comments.