The cryptocurrency landscape is constantly evolving. What started out with more commonly known coins such as Bitcoin and Ethereum has evolved into over 20,000 different variations of cryptocurrency. While each is available to trade, our crypto tax CPAs highly recommend doing sufficient research to understand the value proposition of each before investing. In fact, there are many cryptocurrencies that have no utility or value.
If you’re interested in learning more about researching and trading new crypto coins, here’s what our team at Founder’s CPA recommends.
Metrics & Guidelines to Validate Before Investing
Check the Whitepaper
First, look for a whitepaper, or document that outlines the purpose, vision, and philosophy of the coin in which you’re interested. These are typically published at the launch of a coin launch to attract investors. Each whitepaper will outline the purpose, utility, timeline, supply, how it works, and more. If you’re unable to find the whitepaper or you aren’t sure whether it’s legitimate, it’s best to hold off on your investment.
Locate the Project’s Activity
Generally speaking, not all active projects are reliable, but the activity is a good indication of the coin’s surrounding activity. For example, you can research social media platforms such as LinkedIn, Twitter, or Instagram to see if the crypto has any active handles. When was the last time that the account posted an update? How many followers does the account have and what is the engagement on the account like? Looking into both the community and developer activity is another good indicator. The coin’s enthusiasts will flock to the community via platforms like Slack, Discord, or Telegram. If you’re unable to locate any trading or developer activity, this is a red flag.
Check Sources & Use Cases
The right research is key to helping you understand the legitimacy of a coin. Make sure to double-check the sources that you’re utilizing to make sure that they’re legitimate. For example, is the site properly edited? What is the language like on the overall site? Is the content easy to understand and who is the author? Look out for information that is biased; companies should be aware of both strengths and shortcomings when presenting information to the public.
Building Your Investment Plan
While the internet is an effective resource for finding new and legitimate cryptocurrency investments, don’t rush into anything. Searching for a project’s online presence and ensuring it’s legit can save you frustration (and money) in the long run. As crypto is a volatile digital asset, it’s always best to do your research beforehand. If you’re interested in learning more about how cryptocurrency can benefit you but you’re not sure where to begin, this is where our team can step in and help.
See How Our Crypto Tax CPA Can Guide You
At Founder’s CPA, we have a team of experts and accountants who can guide you or your business in the right direction. We have a deep industry knowledge of cryptocurrency accounting and taxation, and we’re happy to help you understand the ins and outs of your investments. Take advantage of our free consultations to get started.