What are shitcoins and how to avoid buying them

Blockchain technology has made it possible for anyone to create their own cryptocurrencies and tokens. However, it is important to understand that not all of them will retain their value over time. Looking at Bitcoin’s growth, many novice investors are putting their money into new coins hoping that those will bring them super-profits and have the same growth path as Bitcoin.

 

In today’s article we will talk about shitcoins – coins with low market capitalization and no perspectives that can turn investments into serious losses for their owners. We also discuss how to avoid purchasing such coins.

What shitcoins actually are? 

Bitcoin, the first cryptocurrency that only a couple of dozen people knew about during its inception, has grown to become one of the most talked about phenomena of our time. Bitcoins mined 11 years ago brought their owners profits that exceeded the gains provided by any assets before, even the most valuable traditional ones.

The first altcoin, Namecoin, was launched in 2011, and marked the beginning of the trend of creating new coins. The ability to create their own cryptocurrencies and tokens attracted a huge number of users. These users brought different goals, views, opportunities, and ideas to the cryptocurrency space. The types of users were typically enthusiasts or seekers, but some simply joined as scammers.

The term “shitcoin” describes s a cryptocurrency that has no value or perspective. The criteria for defining a coin as a shitcoin varies. For Bitcoin-maximalists, any coin that is not Bitcoin is a shitcoin. For others it is a coin that is not in the top 100, and for some it is a coin that has lost its value over time. For this very reason, we will not limit the definition of “shitcoin” to one factor but define it as a coin that:

  • has low liquidity and trading volumes;
  • has lost value over time;
  • has no technological or practical value;
  • is traded on questionable exchanges;
  • has extremely low value (<0.01$);

Please note that the above mentioned criteria are not imperative. It is therefore necessary to conduct your own research of the assets selected for further investments.

Why do shitcoins appear?

Fraud schemes can be diverse and have multiple levels. With each new growth cycle of cryptocurrencies and the hype surrounding them, there are more and more sophisticated ways to make money using shitcoins by fooling gullible users.

In the case of fraudsters, a coin is initially a shitcoin, but often coins can depreciate over time for numerous reasons. For example, after the ICO boom in 2017, a huge number of projects that launched their tokens failed to implement their plans due to lack of interest from users, a large number of competitors or irrelevance of implemented ideas. Many projects, launched on the Ethereum platform and attracting funds in ETH, have been closed due to the lack of funds and a drop in value of ETH.

Many shitcoins were created on the wave of hype and the rise in popularity of cryptocurrencies. They were designed to mock or invalidate  the cryptosphere by creating fraudulent schemes. Such coins are, for example, SexCoin, PutinCoin, and many others. Plentiful users create coins simply because they can, without any intent to bring innovation in the cryptosphere.

How to avoid buying shitcoins?

It is not possible to completely avoid buying shithcoins, as one can’t possibly know the trajectory of the project whose coins are being purchased. However, one can reduce the chances of buying unpromising coins by carrying out an independent analysis and studying the chosen project. We in turn will suggest some recommendations, which are worth considering when choosing coins for investment.

Before buying any cryptocurrencies or tokens, you should pay attention to the status of the project and the latest updates on their Github page. If there were no code changes and updates recently, then it’s most likely the work on the project has been stopped. You should also monitor the activity on their social media networks and blog announcements, information about updates and various activities for the involved participants of the project indicate that the project is not abandoned to say the least. Most of the cryptocurrencies have dedicated Telegram groups for their communities, joining these groups provides a closer look on how things evolve and gives access to information before it is publicly announced.

To avoid shitcoins in your portfolio, pay attention to the project’s team and objectively evaluate the implementation of the ideas the developers set.The golden rule is if the project’s website or social networks guarantee a price increase, it’s better for you to opt out of investing in the project’s tokens.

To avoid purchasing shitcoins, it is recommended to avoid so-called Pump & Dump schemes. Pump & Dump is an artificial increase of a coin’s price by attracting new buyers. There are specialized channels, calling on their participants to buy up an asset following their signals. It is possible to induce instant price growth at low costs with the help of Pump & Dumps, because their trading volume and liquidity are comparatively low. Most often it is the organizer of Pump & Dump, who profits in such cases, while users end up being holders of worthless coins. This scheme is not new — long before cryptocurrencies appeared, they were used in traditional markets to swing the prices of so-called “junk” stocks.

Summary

Keep in mind,  new tokens are launched every day and it is quite difficult to determine which of them will bring value in the future. he list of cryptocurrencies on Coinmarketcap alone exceeds 9 thousand positions and  during the existence of cryptocurrencies, an entire graveyard of useless and forgotten coins has formed

Only a detailed analysis and independent research of prospective projects will help avoid buying a “promising asset with low liquidity”. 

At 3 Commas, we will not promote any ‘’shitcoins’’ and we will  raise awareness when we encounter one. We hope this article was helpful!

Cryptocurrency

Comment