As the world of cryptocurrencies continues to grow, more and more people are looking to invest in crypto projects.
But with this growth comes increased risk, as not all crypto projects are created equal.
To help you navigate this ever-changing landscape, we’ve compiled a list of major red flags to look out for when investing in crypto projects.
In this blog, we’ll take a closer look at these red flags, and provide you with some tips on how to avoid falling victim to scams or losing your hard-earned money.
To start this article off, lets talk about two things:
1) Definition of Crypto Projects and
2) The Importance of Investing in Crypto Projects Safely.
Crypto projects are blockchain-based initiatives that are typically aimed at solving specific problems in a decentralised manner.
They often involve the creation of a new coin or token that is used to power the platform or to reward its users.
Investing in crypto projects can be a lucrative venture, but it can also be a risky one.
With so many scams and fraudulent projects in the crypto space, it’s important to be able to spot the red flags that indicate a project is not worth your investment.
By learning to spot red flags early, you can increase the likelihood of making better investment decisions, which means you protect your money.
Red Flag #1: Lack of a Clear Roadmap
What is a Roadmap
A roadmap is a representation of a project’s goals and the steps it will take to achieve them. It outlines the project’s timeline, milestones, and the team’s vision for the future.
Why is it Important
A clear roadmap is essential for a crypto project as it gives investors an understanding of what the project is trying to achieve, and how it plans to get there.
A lack of a clear roadmap can be a major red flag for a crypto project.
If a project does not have a roadmap, or if the roadmap is vague or incomplete, it may indicate that the team doesn’t have a clear direction or understanding of what they want to achieve.
Additionally, a lack of a roadmap may also suggest that the team is not planning to invest the time and resources necessary to see the project through to completion.
How to Spot a Lack of a Clear Roadmap
When doing your research into a project, usually you will be able to discover the project's roadmap/timeline in its online material. Typically it will be displayed on their website or in their whitepaper.
When you’re reviewing their roadmap take a minute to make sure that what is written makes sense IE passes the logic test, to a degree is SMART - Specific, Measurable, Achievable, Realistic, Timed, and doesn't contain large gaps.
For example, if a project has in its timeline that they just started 2 weeks ago and intend on having a community of 100,000 within the next 2 weeks - that doesn't really make much sense.
Another example might be that if the project claims that it will become a global powerhouse within 12 months without specifying the steps in between that will make that outcome a reality, that is a clear sign of a lack of a clear roadmap.
Red Flag #2: No Working Prototype or MVP
Definition of MVP
An MVP (Minimum Viable Product) is a version of a product that has the core features and functions necessary to demonstrate the concept and validate the product-market fit.
An MVP doesn't have to be fancy with all the bells and whistles of the full product, it just needs to perform core functions to demonstrate viability.
Importance of a Working Prototype or MVP
A working prototype or MVP is crucial for not only a crypto project but also any tech-led project, as it demonstrates the feasibility of the project and provides a tangible proof-of-concept.
How to Spot a Lack of a Working Prototype or MVP
A lack of a working prototype or MVP is a major red flag for a crypto project.
If the project only exists on paper or in theory, it may indicate that the team is not committed to seeing the project through to completion.
Usually, you will be able to find access to a project's MVP via their website or inside of their community channels such as Discord.
For example, our platform's MVP for a crypto-centric real estate marketplace is Homes with B4REAL - a simple version of our full platform which we are currently developing for buying and selling real estate with digital assets.
Red Flag #3: Team Members with Questionable Backgrounds
Importance of a Strong Team
The success of a crypto project is largely dependent on the strength and experience of its team. A strong team is essential for bringing the project to life, managing risks, and driving growth.
How to Verify Team Members’ Backgrounds
To verify the backgrounds of the team members, you can do a quick online search or use tools such as LinkedIn to research their past experiences and qualifications.
You can also reach out to the team members directly to ask questions and get a better understanding of their backgrounds and experience.
Red Flags to Watch Out For
Some red flags to watch out for when researching the backgrounds of the team members include a lack of experience, understanding, or qualifications, a history of bankruptcy or fraud, or a lack of transparency about their background and experience.
It is not uncommon for people to be suckered in by a person who confidently speaks a big game but it is important to not be starstruck by their words and dig deeper into their understanding, background, and experience.
Red Flag #4: Promises of Guaranteed Returns
Definition of Guaranteed Returns
Guaranteed returns are promises made by a crypto project that the investor will receive a specific return or growth with their investment.
Why Promises of Guaranteed Returns are a Red Flag
Promises of guaranteed returns are a major red flag for a crypto project. The crypto market is inherently volatile, and there is no way to guarantee returns.
If a project is promising guaranteed returns, it may indicate that the project is a scam or that the team doesn’t have the best intentions long-term.
For example, a project guaranteeing their token will go from $0.001 to $1.00 within 6 months because INSERT GOOFY REASON… it would be advisable to be skeptical of said project.
Red Flag #5: Lack of Community Engagement
Definition of Community Engagement
Community engagement refers to the level of interaction and communication between the project team and the community.
This includes things like regular updates, community feedback, and the presence of an active community.
Why Lack of Community Engagement is a Red Flag
A lack of community engagement is a major red flag for a crypto project as it suggests that the team is not committed to the project or that they are not open to feedback and suggestions from the community.
Additionally, a lack of community engagement may also indicate that the project is not actively being developed or that there is low interest in the project.
A note here is to remember to view the metric of community engagement against how niche the product offering is. For example, you’d likely expect a hot gaming concept to have a larger and more active community than a smart accounting solution for accountants.
How to Spot Lack of Community Engagement
To spot a lack of community engagement, you can look for things like infrequent updates, a lack of community feedback, and an inactive community.
You can also check forums, social media, and other online platforms to see how the team interacts with the community.
Red Flag #6: Hype-Driven Marketing
Definition of Hype-Driven Marketing
Hype-driven marketing refers to a marketing strategy that emphasizes creating excitement and interest around a product or project, often through sensationalist or exaggerated claims, without a solid foundation of substance or evidence to back it up.
Why Hype-Driven Marketing is a Red Flag
Hype-driven marketing is a red flag for a crypto project because it often indicates that the team is more focused on creating hype and generating quick profits, rather than building a sustainable and credible project.
Projects that rely on hype to drive growth and interest may not have a clear vision or plan for the future, and their success may be short-lived.
How to Spot Hype-Driven Marketing
To spot hype-driven marketing, look for projects that make grand, exaggerated claims about their potential impact or benefits, without providing any concrete evidence or data to back up these claims.
Additionally, projects that heavily rely on celebrity endorsements, paid influencer marketing, or other forms of sensationalist promotion may also be using hype-driven marketing tactics.
When researching a crypto project, it's important to look beyond the hype and focus on the project's underlying technology, its goals and plans for the future, and the strength and experience of its team.
Investing in projects that have a solid foundation, rather than relying on hype, can help ensure the long-term success and stability of your investment.
In conclusion, investing in crypto projects can be a lucrative venture, but it's crucial to be vigilant to avoid falling victim to scams or losing your hard-earned money.
By being aware of the red flags and taking the time to research projects and their teams, you can increase your chances of making smart investment decisions.
Remember, a clear roadmap, a working prototype or MVP, and a strong team with transparent backgrounds are all important indicators of a viable crypto project.
So, stay informed, stay alert, and stay focused on your financial future. With the right approach, investing in crypto projects can be a safe and rewarding experience.
Also, there are always exceptions to rules and you should take the full picture into account when making your decisions.
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