Introduction to Shitcoins
Market Meditations | February 3, 2022
Shitcoin is a term used by crypto investors to describe coins which have little or no actual value but receive hype or publicity to artificially inflate prices through pure speculation instead of utility.
This run-up is inevitably followed by a swift and steep drop in price as original and savvy investors take advantage of the ephemeral high prices.
When well-equipped, and with a bit of due diligence, these bogus projects can be easy to spot.
Methods to separate the wheat from the chaff:
1️⃣ Vet the Team In shady projects, proprietors seldom wish to be held accountable or accept responsibility for perpetrating these Ponzi schemes. Do the research. If the core team members aren’t publicly identified, take note. When team members are identified, always run a background check. Sometimes, you can easily discover that an individual has been associated with past shitcoins!
2️⃣ Identify the Use Case and Supporting Technology These projects must appear prestigious enough to draw attention. It’s common for them to make grand claims, often vaguely claiming to solve some of the biggest concerns in the industry yet offering no explanation of how to do so. For example, it’s true that interoperability is an issue in crypto. In fact, it’s one of the core issues of 2022. It’s also true that many multichain solutions exist. But has the project explained their solution? Do they have the capabilities to achieve it?
3️⃣ Scrutinize the Whitepaper Reading the whitepaper is a must for any coin when considering it as an investment. If the document lacks real substance or bears an uncanny resemblance to another project’s, it should sound some alarms. Whitepapers are the single most important tool projects have to explain their product.When a team fails to seize this opportunity, it’s either due to negligence (not a good sign) or because there’s nothing to say (a worse sign).
4️⃣ Examine Initial Coin Offerings
Drastic discounts for early investors on ICOs coupled with brief lock-up periods for tokens purchased are cause for concern. Short lock-up periods are designed to allow swift offloading of token holdings. If discounts for these tokens are approaching or surpassing 25%, it might be time to move on.
5️⃣ What Do Holders and Liquidity Look Like?
The number of holders and liquidity pool size should be within the margin of expectation for new projects. Without people and money, projects reliably fail. If a prospective coin has 150 holders with a liquidity pool in the low 10’s of thousands of dollars, it may indicate a hard pass.
Developing good habits as listed above will establish self-accountability and will serve you very well long into the future.