Every token and cryptocurrency thrives on liquidity; liquidity is the ease with which a digital asset such as crypto or NFT can be bought and resold to make gains. What then is the probability that the new token that’s out would garner liquidity and not die off as a shit token just like many others before it?
Of course, no one wants to lose their funds to failed investments, but at the same time, you do not want to be on the regretting side if this new token ends up becoming the next big thing. How do you then strike a healthy investment balance? Firstly, you don’t just jump on the bandwagon, instead, understand the potential risks of investing in a new token, then decide what your next smart move would be from an informed mind.
What Is A Token And How Does It Work?
Tokens have grown to become an integral part of the crypto ecosystem. Regardless, they are not as very credible as cryptocurrencies. A token, although it shares some similarities with crypto, is a tad different. Tokens are an embodiment of value, existing digitally, and are tokenized on the blockchain of a cryptocurrency that is already in existence.
Cryptocurrencies exist on their own blockchain. For example, Bitcoin functions on a Bitcoin blockchain, and the same is said for Ethereum. On the other hand, tokens exist on borrowed blockchains as opposed to cryptos that operate on their respective native and independent blockchains.
For clarity’s sake, a blockchain is a global home of nodes existing as a network of computers that houses data. This makes it difficult to duplicate, bypass, or change existing data on the blockchain.
Investing In New Tokens; Potential Risks To Look Out For
Through a process called the ICO (Initial Coin Offering), which involves a round of crowdfunding, crypto tokens are used as fund-raising assets where they are developed, distributed, and sold. Usually, tokens serve as project fundraisers.
But in no distant time, the rapid growth of the token framework would attract negative energy. The influx of scammers into the system, who would create many tokens just to take advantage of the fundraising, would become so common a thing. So, as an investor, it’s important to do due diligence before investing in any token.
2. Token value loss
Tokens, just like crypto, can be volatile. When there’s a negative price change, influenced by liquidity, it can cause your token investment to have a negative shift. And this means a loss for you. One thing to note, however, is that the blockchain which hosts a token also contributes to the route that a token’s value would ply. The bigger the investment, the bigger the loss.
3. Token market capitalization
Before investing in a new token, you must check its market capitalization. A token’s market capitalization is a reflection of the number of funds invested in the said token. This gives an insight into the entire diluted cap of the token project. Knowing this tells of the potential value of a token.
A high market capitalization means a limited token supply and circulation, and inadvertently, a token is highly likely to have a future value boost from a limited supply. So, one of the potential risks of investing in a new token lies in its market capitalization.
4. Token model verification
Token models vary. You must verify a token’s model before investing in it. There are inflationary and deflationary token models. The former has an unlimited supply. The latter is as opposed to the former. And you must note that limited availability precedes value.
Token model verification is crucial when trying to figure out the right token to invest in. These are the questions that must be satisfied; What data can be obtained from the technical analysis of a token? What is the historical performance of other early tokens of this model? Until you’re satisfied with the answers you get, do not invest.
Dart Africa; Trading Crypto for cash
The idea of understanding the potential risks in investing in a new token stems from the place of loss avoidance. In the world of digital asset trading or conversion, strategic steps must be taken, and ideal crypto facilities must be adopted.
Narrowing this down to converting crypto to cash, the best platforms to use are automated crypto facilities. One such platform that helps with this is Dart Africa. It’s a crypto facility solely developed to help eradicate the hurdles peculiar to Nigerian and Ghanaian crypto traders. And over a few years, there has been an amazing number of sign-ups.
As seen on different review websites, the qualities that make this platform stand out are; low gas fees, great conversion rate, fast payment time, and great customer care support that meets every user’s needs.