Amidst the chaotic world of cryptocurrencies fraught with scams, hacks, and frauds, the emergence of AI-generated deepfakes luring unsuspecting victims to part ways with their Bitcoin (CRYPTO: BTC) highlights the paramount importance of security in the realm of digital assets.
In a recent survey by The Ascent, a division of The Motley Fool, security concerns emerged as the primary deterrent for prospective crypto investors, with 35% expressing apprehensions. Additionally, 28% cited the absence of a clear regulatory framework, while 24% dismissed cryptocurrencies as nothing but a scam. These anxieties underscore the critical question of safety when considering digital assets as investment vehicles.
Risky Endeavors with Meme Coins
Although certain meme coins like Dogecoin (CRYPTO: DOGE) and Shiba Inu (CRYPTO: SHIB) boast billion-dollar valuations, the vast majority of meme coins are fraught with peril for the average investor. Often created hastily to capitalize on passing trends, these coins are exposed to scammers and fraudsters. In fact, tutorials on YouTube illustrate how effortlessly one can create a meme coin in under an hour.
Unlike established currencies like Ethereum (CRYPTO: ETH), meme coins lack the robust security measures supported by dedicated teams of cryptographers and developers dedicated to fortifying encryption protocols and safeguarding against cyber threats.
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While hackers pose a risk to meme coin holders, the creators themselves remain the primary threat. Deceptive tactics such as pump-and-dump schemes executed via social media and ‘rug pulls,’ where coin founders abscond with investors’ funds overnight, paint a grim picture of the unpredictable meme coin landscape.
Caution with Low Market Cap Coins Priced Below $1
Among over 20,000 cryptocurrencies in existence, merely 468 boast market caps exceeding $100 million, as per CoinMarketCap data. Notably, only 95 cryptocurrencies surpass a $1 billion market cap, with a mere 16 breaching the $10 billion threshold.
Creators of several coins accelerate their ascent to a respectable market cap through the issuance of billions or sometimes trillions of coins during launch. Consequently, despite trading below $1, some coins command market caps exceeding $100 million, owing to an inflated initial coin supply.
To bolster the security of a cryptocurrency portfolio, investors are advised to consider two fundamental rules: exclusively invest in coins surpassing a specified market cap threshold and restrict investments to tokens priced above $1. A judicious approach involves focusing solely on coins listed within the Top 100 by CoinMarketCap, currently necessitating a minimum market cap of approximately $1 billion.
Interestingly, Bitcoin too embarked on its journey as a low-market-cap coin, taking two years post-launch to surpass the $1 mark. With a circulating supply of approximately 5 million coins in its early days, Bitcoin’s implicit market cap stood at a modest $5 million.
Exercising Caution with Coins Absent from Major Exchanges
A prudent guideline for investors is to eschew cryptocurrencies absent from prominent exchanges such as Coinbase Global (NASDAQ: COIN) to gauge a crypto’s credibility. Exchanges like Coinbase Global conduct thorough due diligence before listing a cryptocurrency for trading, thereby shouldering the burden of security assessment on behalf of investors.
While this rule is generally reliable, regulatory actions contemplated by the Securities and Exchange Commission against certain cryptocurrencies may prompt exchanges to delist such assets until regulatory uncertainties subside.
But What About Bitcoin?
Bitcoin, the poster child of the crypto world, satisfies all three security criteria outlined above for a ‘safe’ crypto investment. It shuns the ‘meme coin’ label, boasts a colossal market cap surpassing $1 trillion, and is ubiquitously available for trading. The emergence of Bitcoin exchange-traded funds further simplifies investment, enabling individuals to partake in Bitcoin-related opportunities akin to traditional stock transactions.
While Bitcoin remains resilient to hacking attempts, a litany of scams, frauds, and heists over time has underscored the need for vigilance and prudence in navigating the crypto landscape. Cautionary advice includes steering clear of enticing promises of doubling one’s Bitcoin stash and being wary of potential pitfalls lurking in the crypto market.
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Dominic Basulto holds positions in Bitcoin and Ethereum. The Motley Fool is invested in and endorses Bitcoin, Coinbase Global, and Ethereum. The Motley Fool maintains a disclosure policy.
The expressed viewpoints and opinions in this article represent the author’s perspective and do not necessarily align with those of Nasdaq, Inc.
