(qlmbusinessnews.com Thur, 24th Aug, 2023) London, UK —
“Bitcoin's days are numbered. It seems like just a matter of time before it suffers the same fate as online gambling.”
These were the words of a tech CEO in a 2013 tweet.
At that time, Bitcoin had reached a peak of slightly over $1,100 and was on the brink of entering a bear market.
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Initially, his prediction seemed accurate. Bitcoin plummeted to $350 by early 2015.
However, by 2017, it had rebounded to the $1,000 range, eventually soaring to over $17,000 by the year's end.
Clearly, its days weren't as numbered as he anticipated.
This CEO failed to consider that Bitcoin's underlying fundamentals enable it to withstand the test of time.
Bitcoin operates in a decentralized manner, requiring majority consensus for any alterations. This prevents any individual or entity from manipulating Bitcoin for personal gain.
Bitcoin is permissionless, meaning it can be used without requiring anyone's authorization.
Bitcoin is pseudonymous, allowing users to transact without revealing personal information. (It's worth noting that Bitcoin isn't entirely anonymous, as transactions can be tracked and potentially linked to personal data.)
Bitcoin pioneered a new asset class, paving the way for thousands of cryptocurrencies today. However, Bitcoin remains the largest player.
Interestingly, the same CEO who once predicted Bitcoin's downfall—Michael Saylor of MicroStrategy—began purchasing Bitcoin in 2020 due to its decentralized, permissionless, and pseudonymous nature.
Saylor didn't merely buy a small amount of Bitcoin; he revamped his company's treasury policy to allocate excess free cash into Bitcoin.
Today, MicroStrategy possesses 152,800 Bitcoins, valued at around $4 billion.
Saylor even stepped down as CEO to become a full-time Bitcoin advocate.
Given Bitcoin's success, many investors now seek the “next Bitcoin.”
Nevertheless, not all crypto projects share the same robust fundamentals. Investing in such projects could prove disastrous.
Today, we'll explore three warning signs that should raise concerns about risky crypto ventures.
Red Flag Number 1: Cryptos Collecting Intrusive Data
Consider the crypto project that employs a secure identification method: retinal data, or eye scans.
This project incentivized users to join by offering $60 worth of crypto in exchange for their retinal data. This tactic gained traction in Kenya.
However, the Kenyan government shut it down when news of biometric data collection emerged.
Worldcoin serves as an example of projects using invasive data practices.
IBM reports that data breaches reached record levels in 2023, costing businesses and consumers around $500 million, or over $4.4 million per incident.
Unfortunately, this issue is here to stay.
With escalating data breaches, it's wise to steer clear of crypto projects that demand sensitive personal information alongside your investment.
Red Flag Number 2: Token Ownership Concentration
Another peril crypto investors face is excessive token ownership concentration.
Numerous crypto projects allocate a substantial portion of token ownership to founders. However, excessive concentration increases the risk of price plunges when a major holder decides to sell.
For instance, Ripple Labs, the developer of Ripple token (XRP), faced this challenge.
When the Securities and Exchange Commission (SEC) filed a lawsuit against Ripple Labs in December 2020, the company owned over 60% of XRP tokens.
Only last year did this figure dip below 50%.
However, with such a hefty concentration and substantial legal expenses, Ripple might underperform during a bullish market.
In such cases, the company could be compelled to sell tokens to cover costs—similar to a company needing to sell shares for fundraising, which generally harms existing owners.
Our in-house crypto analysts, Greg Wilson and Houston Molnar, advise focusing on projects with less than 30% concentrated ownership by the development team—a useful guideline.
Red Flag Number 3: Overhyped Projects Lacking Substantial Fundamentals
During crypto bull markets, numerous projects emerge as little more than profit-seeking endeavors.
These projects, often hyped beyond measure, lack solid information about fundamentals and problem-solving capabilities.
Spotting this red flag can be challenging amidst the euphoria of a bull market.
One notable indication of an overhyped project is celebrity endorsements.
EthereumMax serves as an example. Not affiliated with Ethereum, it used flashy advertisements to promote its vague aim of “reshaping the future of finance.”
In 2022, EthereumMax paid reality TV star Kim Kardashian $250,000 for a social media post to her then 225 million Instagram followers—without disclosing the paid endorsement.
Consequently, the SEC sued Kardashian, who eventually settled for a $1.3 million fine. Subsequently, EthereumMax's value plummeted over 99%.
Distrustworthy cryptos also commonly generate buzz through fake accounts and bots, creating “pump and dump” schemes.
Should you come across a celebrity-backed coin or considerable marketing hype, scrutinize the project's fundamentals before making hasty investment decisions.
The celebrity's financial interest often stems from a paid endorsement, rather than holding the coin.
The Positive Indicators to Seek
Numerous Bitcoin enthusiasts regard it as the ultimate winner.
A positive indicator emerges when a project emphasizes decentralization, permissionless usage, and pseudonymity.
Such projects rely on majority consensus for changes, don't require celebrity endorsements for promotion, and abstain from demanding intrusive personal data.
Bitcoin and Ethereum serve as prime examples of crypto projects with these attributes, explaining their status as the two largest cryptos by market capitalization.
Thankfully, numerous smaller crypto projects—like some under the ownership of HLS Asset Management—also exhibit these positive indicators.
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By applying these three criteria, They have identified 27 cryptocurrencies with over 1,000% gains, including remarkable performances like 14,927% on Binance (BNB), 37,573% on Neo (NEO), and 18,442% on Ethereum (ETH).
This methodology has solidified their reputation as the most trusted organization in crypto, as endorsed by 130,000 independent analysts. Searching for positive indicators is an effective approach.
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