- Crypto analyst Lark Davis shares some key RED Flags that investors should watch while investing in new altcoin projects.
- He shares five key things to consider before investing in altcoin projects during this brutal bear market.
The brutal bear market in crypto has rattled everyone including small and big investors. The broader crypto market has lost more than 70 percent of its valuations since the peak of November 2021. For long-term investors patient enough to wait for the next bull run, this might be a good opportunity for dollar-cost averaging.
However, just because some cryptocurrencies are available for a very few cents doesn’t mean one must park money into them. Currently, more than 95 percent of the cryptocurrencies in the market are available at a 90 percent discount and more. Although this appears to be a very good bargain, one must still be watchful. This collapse of the Terra ecosystem this May 2022 is a very big lesson that even some of the top projects can go to dust in no time.
Thus, it is essential for investors to filter the good projects that survive the test of time. Crypto market analyst Lark Davis shares a list of cryptocurrencies one should NOT BUY in this bear market. He also shares how investors can identify such coins by themselves.
1. Altcoins that didn’t reach all-time highs
Most of the top crypto projects and their subsequent digital assets touched a new all-time high moving way past their ATHs back in 2017. However, there have been coins like XRP, NEO, and many others, that just failed to take the advantage of the 2021 market bull run.
Buying such altcoins during the bear market makes no sense during the current market slump. Davis adds that these altcoins had enough chance to prove their mettle during the last bull run but failed.
But what about XRP? Ahem Ahem! As we know, Ripple has been in a legal battle with the SEC since December 2020 and the case remains pending as of date. Analysts are expecting the case to end in favor of Ripple post which XRP could have a chance of a major rally. Also, XRP continues to be among the top ten cryptocurrencies despite all the headwinds.
2. Coins that are missing developer activity
Altcoins that have come to stagnancy in terms of developer activity are a big NO-NO as per Lark Davis. Some projects might have promised some amazing technological things but might have failed to move the needle.
Davis adds that there’s no reason to believe in projects and their future that haven’t shown concrete developer activity in the last six months. Such projects are a big Red Flag. To keep a tab on the developer activity, Davis suggests a website cryptomiso.com.
3. Social media engagement
Davis suggests investors follow the social handles of crypto projects, especially Twitter, Discord, and Telegram since the crypto communities are in big numbers here. Are these projects communicating enough to their audience about the new developments? Are the followers engaging enough? Do these crypto projects form good partnerships with their industry peers? If the social engagement is dead or dying, there’s enough evidence for investors to take things with caution.
4. Research the coin model
Davis says that before investing in the crypto project, investors should do enough research about the coin model. He says that during the bull market several scammy coins rally 10x and even more thereby attracting retail investors.
There’s no fundamental catalyst behind the rally of such coins but just HYPE, says Davis. Such coins often witness massive crashes during the bear market evaporating investors’ money. Only projects with strong fundamentals and coin models are likely to survive.
Key questions investors should ask are How does this coin make money? Does it offer any special dividends? Does it have a strong economic model driven either by token burns, NFTs, etc?
Davis adds that investors should avoid fake governance promises offered by the projects. He says that coins that have good reason to exist will survive while others might just fail.
5. Coins facing liquidity issues
The collapse of the Terra ecosystem and the liquidity issues currently faced by multiple lenders are the biggest learning lessons. Thus, Davis notes that if one is buying very high-risk altcoins in the market, they must be willing to lose all their money.
Buying into such projects can dry investors off their money if the market situation worsens further as bears intensify. Davis says that if the trading volumes are under six digits then it’s a major RED flag. In this case, investors might never be able to exit these positions.
Even if the coin has a low market cap but higher trading volumes, there could be something interesting about the project, says Davis. Thus, the liquidity factor is one of the major things that investors should be alert about while buying new altcoins projects.
Cryptocurrency markets are extremely volatile and even the best-looking coins could fail entirely. We have the recent example of Terra LUNA wherein more than $40 billion dollars of investors’ money went into thin air. Davis says you never know what’s brewing behind the scenes. Thus, he advises that while investing in altcoins, investors should diversify their bets.