What Are Shitcoins and How to Avoid Them?

In just a few years, cryptocurrency went from being another academic concept to an aspirational currency. As a result, the crypto market is evolving, and new players are taking the stage to improve competition and increase the offering.

Bitcoin is the most popular currency. However, post Bitcoin, several projects have come out with their coins. Not all currencies are valuable or worth investing in. The market is flooded with money that has been identified as shitcoins.

What are shitcoins?

Shitcoins are cryptocurrencies that have limited or nil value in the market. They don’t offer any value to the investors. These are coins that followed the Bitcoin route but gained no value or price.

There are several reasons why a cryptocurrency fails and gains the shitcoin label.

  1. It wasn’t created in good faith. The only reason they showed up in the market was because of Bitcoin’s popularity. 
  2. These coins may have gained the price based on the speculation in the market. There is a good chance that the coin will eventually fail to perform, and the investors will lose their money.
  3. As a result, the investors didn’t show interest or limit their investment in these coins. Shitcoins help investors gain for a short period. You can invest and sell for a limited time before the currency loses its value.

How Do Shitcoins Work?

Shitcoins work similarly to Bitcoin or any other popular cryptocurrency. However, with the increased interest in this niche, several individuals and businesses have developed their alternate currency.

The supply of the altcoin is fixed, and there is a cap attached to buying these coins. However, there is limited use of these coins in the real world. As of date, one cannot use these coins for regular transactions, which limits their value. As a result, the value of these coins is determined through speculation. And we can sway the pendulum of price in any direction.

Ultimately, the whole price volatility and stickiness depends on the investor. If they are interested in the coin, it is possible that the coin’s worth increases.

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How to Spot Shitcoins and Mitigate Risks?

Shitcoins can be pretty risky for investors if they haven’t studied the crypto market before investing. These coins can lead to significant losses and eventually lead to distrust among investors in this currency.

Here’s how you can spot the shitcoins and avoid investing in them.

  1. When you hear Libra (now Diem), you know it is a currency released by Facebook. The name behind the cryptocurrency allows you to trust the currency and invest in it. However, if you aren’t aware of who created the money or, what these developers did before starting the currency, you should stay away from these coins. It becomes difficult to trust a currency whose makers are either less famous or unknown. However, if the developers have made sure to tell more about themselves and have revealed their identity in a way that builds trust, you can invest in their currency. This is the first trick to spotting a coin that is invaluable or can lead to losses.
  2. If the project doesn’t assure a good start to finish, you should probably avoid it altogether. For instance, there would be projects where the planning and strategy would seem promising. However, these people may not be able to deliver on their promises. The result, i.e., the coin, may not show the promised functionality or features; what you get maybe a complete disaster of a project. In this case, you should avoid investing in these projects.
  3. When you invest in something, crypto, or shares, you check the total number of people interested in the same. If the cryptocurrency has limited to no interested people, you might want to stay away from the same. These numbers are a good indicator of whether it is a good coin or a shitcoin.
  4. The liquidity pool is a measure of whether the coin is valuable or a shitcoin. It should be at least $30000 for you to invest in these coins. If the numbers are way lower than this, then you should technically avoid investing in these coins.

Conclusion

Shitcoins are easy to spot if you are alert and conduct primary research before investing in the crypto market. It is a good idea to remember that your crypto market is essentially similar to your stock market.

  1. Check on the trends of the coin and monitor the graph before investing.
  2. Find out more about the people behind the cryptocurrency and how they are performing.
  3. Check the liquidity pool and number of investors as the last check before saying yes to the coin.

If you keep these aspects in mind, you can avoid the risk involved with shitcoins and invest in suitable cryptocurrencies.

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