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Scandal Sense: When to Bail on a Cryptocurrency

Cryptocurrencies have become all the craze lately, as hundreds of blockchain-based projects are hitting the scene to ride Bitcoin’s coattails. New investors are buying Bitcoin (the world's largest cryptocurrency) and quickly getting enticed to start trading other virtual currencies.

Communities are popping up right and left to promote and market their blockchain project and initial coin offerings (ICO). Naive investors are getting sucked in and buying coins and tokens of projects that they don’t know or understand. When a project runs into a scandal, prices usually drop as traders sell, and clueless investors are left holding coins at a large paper loss. Other projects, like BitConnect, might end up being outright scams and investors that get caught holding the coin will be out of luck.

Our guide will highlight several red flags and key indicators to watch for when investing in cryptocurrencies. If you notice these concerning things, it might be time to flee the scene.

Red flags


The financials of a blockchain’s coin can cause reason for concern. When you invest into a coin you should research the history of the project.

  • How long have they been working on the project?
  • What are the long-term goals?
  • When was their ICO?
  • How much money did they raise?
  • What are their current price and market cap?
  • Is it higher than the ICO price?

If a coin has a market cap that’s significantly lower than it’s ICO raise, then the project could be losing momentum. Suffering a price dip after the initial raise isn’t indicative of a shady project, but it can mean they have run into troubles since the fundraising.

Another comparison to make is the coin’s market cap versus its longevity. A coin that’s been around for a couple years should have been able to use the recent flurry of activity to their advantage. A lower market cap in older coins could be signs of struggle rather than opportunity.



The frequently repeated advice for cryptocurrency investors is to do your research and due diligence on a project and coin before making any kind of investment or buying coins. This means you need to find out as much information as possible about the coin and how it works to have trust and understanding in the project’s future.

If there isn’t much information available about a cryptocurrency, that is a red flag. You want to, first off, feel comfortable about their existence, and having a wide range of content and market placement helps alleviate that concern. To get the scope of a cryptocurrency, traders should use social media as their friend and look through articles, forums, and community groups.

Google searches will give you much of what you need as foundational information about a crypto. Bitcoin and blockchain forums like Reddit and BitcoinTalk have threads dedicated to specific projects, where investors, developers, promoters, and interested parties all share information. Community groups, like Telegram, provide an interactive channel for communities to form around the crypto and communicate with the core development and business team.

You also want to analyze the information you do find about the cryptocurrency because it might be negative news or activity related to the project. There might also be negative news that directly affects the future of the project. For example, exchanges might get hacked or shut down, regulators might take action against cryptos in certain countries, or a key team member might be involved in a scandal.

Blockchain Team

The blockchain team is another area that could be a potential red flag when analyzing a cryptocurrency. This is especially true of ICOs, where you are participating in the initial stages of public funding.

The cryptocurrency you own should have a secured website that draws attention and light to the business and development team members. People buying coins are doing so with the belief that the team can accomplish the business goals set out in their roadmap. That means building the blockchain product, getting users, and gaining adoption in the marketplace. Coin holders should be able to know who is behind the project, what their experience is, and what makes them capable of the task at hand.

A major red flag is when the team is anonymous. It’s way too easy for someone to set up a website that accepts coin payments and create a fake coin with no value. Basically, low-level scams are easy and common when it comes to cryptocurrencies.

You also want to take a deeper dive on the team when you are conducting research and diligence. This is an important part because key role players can be inflated to make it seem like they are capable, when in reality that’s not the case. Double check their experience and if it’s related to their role with the cryptocurrency. Checking to see if they have an active LinkedIn profile is especially helpful in these cases.

White paper

Another factor to consider for your cryptocurrency investments is the project’s white paper. The white paper should be a business plan of sorts that explains the purpose behind the blockchain project, the problems they solve, and how their coin and technology works.

When reading through forums, you will quickly notice people that read through the white papers and point out issues they see with the viability of the coin and project. This shows how powerful a white paper is for a project’s credibility. Having a robust white paper speaks for the cryptocurrency when others are discussing its prospects and potential.

It’s a big red flag if the cryptocurrency doesn’t have a white paper. At this point, it’s a critical piece of information for any blockchain project looking to raise money or have people buy their token. They need to let people in on who they are and what they do. Projects that lack a white paper are suspicious and that might indicate a scam.

When to bail on a cryptocurrency

This might sound like a lame answer, but the best time to bail on a cryptocurrency is before you buy it. You should be doing enough research and diligence on a cryptocurrency before buying to be confident in your investment decision and understand the project. Before buying a coin, make sure you can ask and answer:

What is the purpose behind the blockchain project?
How does the coin work and why is it needed?
Who is going to use this coin in the future?
Where is this coin going to get value in the future?

If you can’t answer these questions, or if the answers are not compelling to you,  you need to reconsider your investment into the cryptocurrency.

When you invest in a cryptocurrency, you should become active in their community. You should join their Telegram or Discord channels if they have them. Team administrators frequently post updates about the project or important information for investors. Review forum threads related to the crypto to stay up-to-date on any news or events surrounding the project. Sign up for their news and updates so you are among the first to hear new information.

If any news, event or activity happens that changes your overall perspective of the project, and you no longer believe in its viability and longevity, then you know it’s time to bail on the crypto. However, each investor has a different risk tolerance. The best strategy is to decide on the most amount of money you are willing to lose, and if the coin drops to that price, you sell.

Cryptocurrencies and cryptocurrency investing are extremely volatile, and investors need to prepare themselves for the rocky ride.

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