How to Identify and Avoid 'Shitcoins' in the Cryptocurrency Market

Learn how to spot the difference between a valueless crypto and one with the potential for major returns.

learn more about Leyes

By Leyes

Opinions expressed by Entrepreneur contributors are their own.

Stories are cropping up all over the world of people who hopped on the crypto trend early, got rich quickly and are now living the life of a millionaire. The stories are especially compelling as these people are average folks it's easy to imagine yourself in their shoes.

Take, for example, Glauber Contessoto. The 33-year-old invested his life savings $180,000 into Dogecoin after Elon Musk tweeted about the cryptocurrency. He'd been watching the coin for some time, noticing the online support that the coin received. At the time, Dogecoin was worth about $.04. In just under three months, his investment became worth $1,081,441.29. So, how did he know this was the right coin to invest in, and not a "shitcoin" as those around him were saying?

What are "shitcoins"?

"Shitcoin" is the term given to cryptocurrency that's useless and has no value. These cryptos were created as copycats currencies that have brought nothing new to the crypto space. They don't have clear goals. Unlike Bitcoin or Ethereum, which came about with specific, defined purposes and innovative goals, shitcoins lack functionalities. For this reason, they don't have the longevity of other coins.

Related: The Cryptocurrency of This TikToker called 'Scam' Achieved a Success That Its Creator Cannot Believe

The risks of shitcoins

As of January 2021, there are over 4,000 cryptocurrencies on the market. They can't all be on the level of Bitcoin, Binance or Tether. In the stock market, there are good and bad investment opportunities, and the same can be said of cryptocurrency. Many shitcoins are created to capitalize on people who are jumping on the crypto bandwagon without doing their research first. Their value is based on speculation and little else.

Plenty of people have lost money to shitcoins from hundreds to thousands of dollars. Hearing stories like that of Contessoto can make purchasing cheap, lesser-known crypto extremely temping. The risks of investing in crypto are similar to those of investing in the stock market. You should never invest more than you can afford to lose, and you should always do your research first.

Related: Cryptocurrency Innovators Need to Simplify User Experience

How to spot a shitcoin

  • The developers are mysterious. The people behind a project should be trustworthy, not a random group of strangers using fake names. You wouldn't invest in stock from an anonymous group, would you? The same applies here. If the developers have identified themselves by video on Instagram or Youtube, for example, they're considered doxxed and much more trustworthy. With their appearance known by the public, it's much less likely to be a scam.
  • The project has big promises, but has no defined functionalities. Anyone can come up with impressive-sounding goals and promises. However, not just anyone can provide the roadmap as to how those objectives will be accomplished. If a project avoids defining the functionalities, it's not trustworthy.
  • Aspects of the project seem copied or generic. If a project's website looks generic or uses a free domain, that should be a red flag. It signals that it lacks the authenticity of a true, well-developed project. Additionally, if the white paper is indistinguishable from that of other popular projects, it's likely a copy made to trick people into feeling secure. Alternatively, if it's technically written with such jargon that it's hard to understand, it's likely a shitcoin.
  • Check the number of holders. Experts say any new coin worth investing in should have 200 to 300 holders, at a minimum. Any coin that doesn't meet that minimum isn't healthy and isn't worth investing in. Similarly, any healthy new coin should have five to 10 transactions per minute.
  • Consider the liquidity pool. The liquidity pool is considered the backbone of most decentralized exchanges. If the project you're investing in doesn't have at least $30,000, it's likely a shitcoin. Low numbers like hundreds or a few thousand should be a warning sign.

Related: 4 Crypto Penny Stocks to Watch With Bitcoin Below $40

At the end of the day, many of the rules that apply to the stock market also apply in the crypto space. Two key lessons will ensure you invest well: Research before you invest and never invest more than you're comfortable losing.


Entrepreneur Leadership Network Contributor

Chairman of Leyes Empire, CEO of Leyes Media and VVS

Kevin Leyes is the chairman of Leyes Empire and the founder and CEO of Leyes Media, a social-media marketing and public relations agency and VVS, an urban jewelry company.

Related Topics

Editor's Pick

Everyone Wants to Get Close to Their Favorite Artist. Here's the Technology Making It a Reality — But Better.
The Highest-Paid, Highest-Profile People in Every Field Know This Communication Strategy
After Early Rejection From Publishers, This Author Self-Published Her Book and Sold More Than 500,000 Copies. Here's How She Did It.
Having Trouble Speaking Up in Meetings? Try This Strategy.
He Names Brands for Amazon, Meta and Forever 21, and Says This Is the Big Blank Space in the Naming Game
Business News

These Are the Most and Least Affordable Places to Retire in The U.S.

The Northeast and West Coast are the least affordable, while areas in the Mountain State region tend to be ideal for retirees on a budget.

Business News

I Live on a Cruise Ship for Half of the Year. Look Inside My 336-Square-Foot Cabin with Wraparound Balcony.

I live on a cruise ship with my husband, who works on it, for six months out of the year. Life at "home" can be tight. Here's what it's really like living on a cruise ship.

Thought Leaders

The Collapse of Credit Suisse: A Cautionary Tale of Resistance to Hybrid Work

This cautionary tale serves as a reminder for business leaders to adapt to the changing world of work and prioritize their workforce's needs and preferences.

Business Solutions

Learn to Build a ChatGPT Bot for Only $30

If you want to see what AI can do for your business, grab this course bundle today.

Business News

American Airlines Sued After Teen Dies of Heart Attack Onboard Flight to Miami

Kevin Greenridge was traveling from Honduras to Miami on June 4, 2022, on AA Flight 614 when he went into cardiac arrest and became unconscious mid-flight.

Health & Wellness

5 Essential Steps to Expand Your Vision and Start Living Your Dream Life

It's time to break free from your comfort zone and expand your vision. When you refuse to settle for a mediocre life, you can start building a life you love.