To avoid being scammed, novice crypto traders should treat most tokens like stocks.


Some stocks are literally tokens on the blockchain, and some tokens are literally stocks on the blockchain. Both represent proportional ownership of a project or company. So, what distinguishes new cryptocurrency traders from new stock traders?

According to the U.S. Securities and Exchange Commission (SEC), an investment contract is formed when funds are invested in a joint venture 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 like Bitcoin

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Those used primarily for the purpose of replacing fiat currencies are considered commodities. In 2017, then the SEC Chairman, Jay Clayton warned. The cryptocurrency exchange has said that many of its products are likely securities and therefore must be registered under federal securities laws.

It is a universally accepted principle that you should research and understand before putting money into a market or asset. What is not specified is a research approach, a comprehensive list of factors to consider, and where to get information.

Stocks are traded in mature markets that have been around for over 100 years, whereas crypto tokens are relatively new markets that have been around for over 10 years. While there is a vast literature on stock trading and best practices that has stood the test of time, the literature on the crypto industry tracks 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 higher education institutions, or work as apprentices. There is a lot of helpful information about dos and don’ts. Most cryptocurrency novice traders lack the proper structure to study and understand the blockchain world before investing. This leads to a trial-and-error approach to learning that many crypto beginners make mistakes that novice stock traders don’t often make.

We know that some institutions, writers, online creators, and exchanges have created blockchain-focused curriculum to help newcomers understand the scope and nature of cryptocurrency projects before investing. But every two weeks, new innovations appear in the blockchain world, making old educational content outdated. This is a good type of problem, but it has some drawbacks.

Newcomers to the stock market often study the sector, categorize the industries within that sector, evaluate the performance of that industry, and identify individual stocks that have the best chance of outperforming their respective benchmark indices.

As the cryptocurrency market enters a mature stage, various sectors and/or industries are rapidly differentiated, such as privacy coins, DeFi (Decentralized Finance) tokens, exchange coins, non-fungible tokens (NFTs), metaverse tokens, fan tokens, stable coins, etc. is becoming themselves. Before investing, new cryptocurrency traders should understand the scope and nature of these classifications.

The profitability of the company in which they are investing is an important consideration for new stock traders. It is common knowledge that inexperienced cryptocurrency traders do not view centralized crypto projects as a company and overlook profitability. For example, Decentraland’s

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profitability? How much value is created and how is it distributed to token holders? We may have an answer for Decentraland, but we cannot give you the same answer for the vast majority of other coins.

The process of creating a crypto token is similar to registering a business or company. The initial value is equal to the total net assets invested by the founders. The future value of a company is determined by the results of its operations and additional capital inputs. This means that when cryptocurrency founders create tokens, they create a block of ownership that can be sold or distributed to the community. The value of the token project immediately after the token launch is equal to the total value invested by the founders and new token holders.

If the token satisfies the howi testThis means that people invest their money in a token project, have a common enterprise, have a reasonable expectation of profit derived from the efforts of others, be eligible for securities and be registered under the Securities Act.

If, after the initial token offering, the token founders allocate to themselves a significant portion of the total tokens available without providing any value, the value per token to new buyers will be lower than the amount they purchased, which is arguably a scam. However, it may not be considered fraudulent if the founders can back up their assignments with exclusive assets contributed to the work completed or the project.

In my opinion, tokens should be treated in the same way that new or angel investors would like to know a company’s earnings and earnings history before investing. It would be appropriate to investigate what crypto projects are doing to create and quantify value and to guess the future growth of the project.

This approach will help new crypto traders avoid buying tokens designed to scam them. Of course, there are other factors to consider, such as contract audits, founder experience and performance, but the above-mentioned approach will help filter out many crypto projects that often deceive new investors.

You agree that all registered companies are not monetized or intended to be monetized. As with charities, non-governmental organizations, and religious organizations, blockchain-based tokens are not for profit.

Tokens are generally divided into three types: utility tokens, asset or liability tokens, and payment tokens. Asset or liability tokens are often considered equity in the same way as holding stock. Utility tokens serve as gateways to digital applications, services and ecosystems. Payment tokens serve as currency. Tokens can be utility tokens, asset tokens, or payment tokens.

When stock traders analyze stocks, they consider fundamental factors that can affect the supply and demand of stocks, such as market share, competition, consumer 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.

In summary, given the token’s business model, financial health, profitability, and user growth can go a long way in keeping novice token investors, such as stock traders, from falling into scam projects.

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