Due Diligence & Best Practices for Crypto Investments

If you want to invest in crypto, thorough analysis is essential—especially when dealing with a new crypto asset. To avoid falling for a fake crypto project and losing significant money on crypto investments, we’ve compiled some best practices for you. We’ll explain how the due diligence process works and what you should consider before investing.

Due diligence is a crucial process when evaluating and assessing investments. Investors thoroughly analyze the asset they are considering for investment.

For example, when investing in a company, the due diligence process includes examining past financial statements, the business plan, the company’s business model, management team, and overall financial and economic stability. Only when an investor is convinced of the asset’s viability do they proceed with the investment.

For cryptocurrencies and NFTs, the due diligence process is just as important—if not even more so. Since trading digital coins and tokens is decentralized and largely unregulated, investors must scrutinize new crypto projects closely.

Investors should investigate the background: Who is behind the project? Have these individuals been involved in previous crypto projects, or are they unknown figures? What is the current market situation? Does the new crypto project have potential? What do crypto insiders and experts say about it? How does the crypto community perceive it?

Answering these questions is essential for risk assessment. It also helps detect scams and prevents you from investing in fraudulent schemes.

Here are some essential points to consider when investing in crypto projects. Following these best practices minimizes the risk of falling victim to crypto scams and losing significant funds.

When trading crypto, selecting a reputable platform is crucial for success. It’s best to stick with well-established platforms like Binance or Coinbase, which have been trusted in the crypto community for years.

Be cautious if you encounter a platform offering cryptocurrencies at unusually low prices or promising extraordinary profits. These are often fake crypto exchanges designed to deceive investors.

Once you’ve found a reputable platform, analyze the crypto assets you want to invest in. This is where the due diligence process comes into play. Understanding the technology behind the cryptocurrency or NFT helps you make informed investment decisions and assess its growth potential. Key questions to ask include:

• Is the blockchain supporting the currency or NFT secure against hacking attempts?
• Is the blockchain still in its experimental phase, or has it undergone a proof-of-work validation?
• What is the scalability potential of the blockchain? Can it handle high transaction volumes efficiently?
• What additional advantages does the blockchain offer? Does it support smart contracts or advanced anonymity features?
• Who are the developers behind the crypto project? Are they well-known in the crypto industry or complete unknowns?
• Who is investing in the project? Which business partners support the development team? Do they have experience with crypto projects?
• Does the development team regularly share updates and engage with the community? Do they publish research findings or whitepapers about the project?
• What are the project’s goals? Is there a clear roadmap with defined milestones?

Once you’ve found a reputable platform, analyze the crypto assets you want to invest in. This is where the due diligence process comes into play. Understanding the technology behind the cryptocurrency or NFT helps you make informed investment decisions and assess its growth potential. Key questions to ask include:

As with any investment, it’s never wise to put all your funds into a single crypto asset, even if it promises high returns. If the currency or token doesn’t perform as expected, you could quickly lose a significant amount of money.

A smarter approach is to diversify your crypto portfolio by investing in multiple assets. If one asset underperforms, the others can help offset potential losses, ensuring you still make a profit overall.

We recommend starting with small investments to gain experience and a better understanding of how the crypto market operates. Once you feel confident, you can gradually increase your investment amounts.

Since crypto assets are highly volatile, we also advise setting up stop-loss orders. These allow you to set a specific price at which your assets are automatically sold if their value drops below a certain level, helping to limit losses.

The legal framework for trading crypto assets varies by country. To avoid legal issues, pay attention to the following aspects:

• Is trading cryptocurrencies and NFTs legal in your country?
• Are there any restrictions on the types of crypto assets you can invest in?
• Do you need to pay taxes on profits from crypto trading?
• Can you deduct losses from crypto trading for tax purposes?

Banks are required to follow regulations that protect their customers’ funds. For instance, they should alert you if a transaction appears suspicious. If you did not receive such a warning, you may be able to hold your bank accountable for failing to protect you.Keep in mind that regulations change over time. Staying informed about legal developments is crucial. If you’re unsure where to find the relevant legal information, consulting experts is a good option. At CountWise, we can help you locate the appropriate authorities and guide you in finding accurate regulatory information.

Due diligence is a critical process in crypto investments that should never be overlooked. The more you know about a crypto asset or project, the better you can assess its success potential.

This process is particularly vital for new crypto projects. Since scammers frequently launch new projects to deceive investors, thorough research is essential for protection.

Gather as much online information as possible about the project, its development team, and business partners. Participating in online discussions within crypto communities can also provide valuable insights.

If a new project lacks clear and detailed information, it’s best to stay away. In such cases, the risk of it being a scam is significantly high.