Home Market Analysis To Avoid Falling For Scams, Novice Crypto Traders Should Treat Most Tokens Like Stocks.

To Avoid Falling For Scams, Novice Crypto Traders Should Treat Most Tokens Like Stocks.

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To Avoid Falling For Scams, Novice Crypto Traders Should Treat Most Tokens Like Stocks.


Some stocks are actually tokens on the blockchain, and some tokens are actually stocks on the blockchain. They both represent proportional ownership of a project or company. So, what is the difference between a new crypto trader and a new stock trader?

According to the U.S. Securities and Exchange Commission (SEC), an investment contract exists when funds are invested in a common business with a reasonable expectation of profit from the efforts of others. Some coins and tokens pass the Howey test and are classified as securities.

Cryptocurrencies such as Bitcoin (BTC), which are primarily used as an alternative to fiat currencies, are considered commodities. In 2017, then-SEC Chairman Jay Clayton warned cryptocurrency exchanges that many of their products may be securities and therefore require registration under federal securities laws.

A generally accepted principle is that before investing money in any market or asset, it must first be researched and understood. What was not specified was the research methodology, a comprehensive list of factors to consider, and where to obtain the information.

Stocks are traded in mature markets that have been around for over 100 years, while crypto tokens are relatively new, having only been around for over 10 years. There is a wealth of literature on stock trading and best practices that has stood the test of time, while the literature on the cryptocurrency industry is a chasing after a rapidly changing environment full of innovation and growth.

To get started in the stock market, new investors often read books, take online courses, study stocks at post-secondary institutions, or take an apprenticeship. There is a lot of information to help you understand the dos and don’ts. Most cryptocurrency beginner traders lack the proper structure to research and understand the blockchain world before investing. This has led to a trial-and-error learning approach, in which many cryptography beginners make mistakes that novice stock traders don’t make very often.

I acknowledge that several institutions, authors, online creators and exchanges have created blockchain-focused courses to help newbies understand the scope and nature of cryptocurrency projects before investing. However, every few weeks, a new innovation emerges in the blockchain world that renders previous educational content obsolete. This is a good question type, but it has some drawbacks.

Newcomers to the stock market often research industries, breaking down sectors within them, weighing the performance of those industries, and identifying the individual stocks that are most likely to outperform their respective benchmarks.

The cryptocurrency market is maturing, with various fields and/or industries such as privacy coins, DeFi (decentralized finance) tokens, exchange coins, NFTs (non-fungible tokens), Metaverse tokens, fan tokens and stablecoins are rapidly dividing themselves. New cryptocurrency traders should understand the scope and nature of these classifications before investing.

The profitability of the companies they invest in is an important consideration for new stock traders. Inexperienced crypto traders are known to not view centralized crypto projects as a company and therefore ignore their profitability. For example, what is the profitability of MANA in Decentraland? How much value is created and how is it distributed to token holders? I may have an answer for Decentraland, but I can’t say the same for the vast majority of other coins.

The process of creating a crypto token is similar to the process of registering a business or company. Its initial value is equal to the total net worth invested by the founders. The future value of a company depends on its operating performance and additional capital injections. This means that when cryptocurrency founders create tokens, they are creating blocks of ownership that can be sold or distributed to the community. The token project value after token launch is equal to the total value invested by the founders and new token owners.

If a token meets the Howey test, meaning it involves people investing in the token project, has a common enterprise, and has a reasonable expectation of profiting from the efforts of others, it qualifies as a security and should be registered as a security Law.

If, after the initial coin offering, the coin creators allocate most of the available tokens to themselves without contributing value, then each token will be worth less to new buyers than the amount they purchased, so to speak Fraud. However, if the founders can back their distribution with work done or proprietary assets contributed to the project, it may not be considered fraudulent.

In my opinion, tokens should be treated the same way a new investor or angel investor would like to understand a company’s bottom line and earnings history before investing. It is appropriate to investigate how crypto projects generate value, quantify value, and speculate on future growth of projects.

This approach will help new crypto traders avoid buying coins designed to defraud them. Of course, there are other factors to consider, such as contract audits and founder experience and track records, but using the above method will help filter out many cryptocurrency projects that often deceive new investors.

I agree that not all registered companies are profitable or intend to be profitable. There are blockchain-based tokens whose purpose is not for profit, like charitable organizations, NGOs, and religious organizations, etc.

Tokens are generally divided into three types: utility tokens, asset or liability tokens, and payment tokens. Asset or debt tokens are generally considered the same as holding shares. Utility tokens act as gateways to digital applications, services and ecosystems. Payment tokens are used as currency. Tokens can be utility tokens, asset tokens, or even payment tokens.

When stock traders analyze stocks, they consider fundamental factors that can affect supply and demand for stocks, such as market share, competition, consumption trends, and daily active user trends. Novice crypto investors should take a similar approach, taking into account changes in the token’s market share, competition, and number of daily active users.

All in all, taking into account the token’s business model, financials, profitability, and user growth rate may help ensure that novice token investors don’t fall into scam projects like stock traders.

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