Timing is everything in crypto trading. Markets move quickly and unpredictably, and even a small delay can impact potential gains. Some traders manage this uncertainty by investing early in new cryptocurrencies while prices are low, aiming for long-term growth. The strategy can lead to significant profits, but it also carries considerable risks, as early-stage assets are often volatile.

In this guide, we’ll explain why and how to buy new crypto before listing, covering the pros, cons, where to find presales, and practical tips to help safeguard your investments. 

Why invest in crypto before listing? 

Traders buy new cryptocurrencies before they list on major exchanges with one goal in mind: to capitalize on a potential price surge. While there’s no guarantee that cryptocurrencies will experience a dramatic price increase after listing on large centralized exchanges (CEXs), increased accessibility, investor interest, and mainstream adoption often lead to a price bump. The phenomenon is known as the "Coinbase effect," where the price of a cryptocurrency typically rises after a major exchange like Coinbase announces its listing.

The appeal of buying prelisted crypto is clear, but predicting whether a new coin will deliver significant gains is impossible. Even the most promising projects are vulnerable to unforeseen challenges and sharp price fluctuations.

Here’s a detailed look at the pros and cons to consider when buying crypto before it’s listed:

Pros

Potential for massive price appreciation

Choosing the right prelisted token can offer traders a chance to grow their portfolios significantly. Take Ethereum’s (ETH) initial coin offering (ICO) in 2014, for example. Investors bought ETH at just $0.31 per coin. By the peak of the 2021 bull market, one ETH was worth over $4,600, a staggering 1,483,770% increase. Other high-profile ICOs, such as Tezos (XTZ), Polkadot (DOT), and Filecoin (FIL), have also delivered substantial returns to early investors.

Incentive opportunities

To build excitement and raise awareness, some altcoin projects offer perks like token bonuses, discounts, or staking rewards. While incentives may continue after a major CEX listing, the annual percentage yields (APYs) are often higher in the early stages.

Early participation benefits

Early investors sometimes receive exclusive access to private community channels, enhanced voting rights in decentralized autonomous organizations (DAOs), or direct communication with the development team. These perks can provide valuable insights and privileges that later traders miss out on.

Cons

Zero track record

Even with experienced leadership, new crypto projects offer no guarantees of success. With no track record, investors must trust in the team's expertise and commitment to turn their vision into reality.

Prone to scams, fraud, and Ponzi schemes

The lack of history and the decentralized nature of crypto makes it difficult to differentiate between legitimate projects and scams. One common scam is the "rug pull," where developers abandon a project after securing enough investor funds. For example, in 2021, developers launched the SQUID token, inspired by the Netflix series “Squid Game.” Although the token’s value skyrocketed, investors quickly discovered they couldn’t withdraw their funds. The developers disappeared, taking over $3 million with them.

High price volatility

Cryptocurrencies are known for their volatility, but prelaunch tokens are particularly vulnerable to dramatic fluctuations. Due to their lower liquidity compared to established assets, even small transactions can trigger large price swings. Additionally, "whales" – individuals holding large amounts of a token – can more easily manipulate market prices to their advantage.

Where to find new crypto presales

Finding prelisted cryptocurrencies isn’t as straightforward as buying Bitcoin (BTC), but the extra legwork can pay off with exclusive access to emerging digital assets. Finding these opportunities is all about knowing where to look and what resources to tap into:

• Social media: Platforms like X, Discord, and Telegram are hubs for the crypto community. Following influencers, developers, and projects on these sites keeps you up-to-date on the latest blockchain news.
• ICO calendar sites: Websites like ICO Drops provide details on new crypto projects and upcoming ICOs. Aggregators like CoinMarketCap also provide ICO lists with similar information.
• Blockchain forums: Along with social media, blockchain forums and chat rooms can be great sources for discovering emerging projects. Sites like Bitcointalk and Reddit’s r/cryptocurrency often feature insights into the best new crypto to buy.
• Crypto news feeds: Trusted news outlets like CoinDesk and CoinTelegraph, which regularly cover web3 trends and upcoming presales, are excellent resources for tracking new developments and staying updated on emerging crypto projects before they hit the mainstream.

How to buy new crypto before listing

During the 2017–2018 crypto bull market, ICOs were the main way for new crypto projects to crowdfund. Investors could typically buy cryptocurrencies directly through a project’s website. However, the simplicity of launching ICOs also attracted scams, prompting governments to introduce stricter regulations. While ICOs still exist, there are now several other ways to buy crypto assets before major listings:

• Crypto presales: Presales function as early-stage ICOs, often open to prescreened investors. These sales occur on a project's proprietary website, where tokens may be offered at a discount. Traders contribute cryptocurrency to a public address, and once the sale is complete, the new tokens are transferred to the trader's wallet.
• Initial exchange offerings (IEOs): IEOs are similar to ICOs but occur on centralized exchanges (CEXs) rather than through a project’s website. Releasing new tokens through a CEX boosts accessibility and provides more security, as the exchange's reputation is at stake.
• Initial DEX offerings (IDOs): The key difference between IEOs and IDOs is that IDOs occur on decentralized exchanges (DEXs), such as Uniswap (UNI). Traders connect their self-custodial wallet to the DEX and trade peer-to-peer (P2P) using an accepted crypto pair to acquire the new token.
• Security token offerings (STOs): Unlike traditional cryptocurrencies, security tokens represent ownership in a shared enterprise and must comply with stricter regulations, such as those from the U.S. Securities and Exchange Commission (SEC). STOs are traded on licensed platforms and are typically available to prescreened users.
• Crypto airdrops: Instead of selling tokens, some projects distribute free crypto through airdrops. Traders usually need to meet specific criteria, such as following social media channels or sharing posts, to qualify for these rewards.
• Liquidity mining: Compound (COMP) introduced the concept of rewarding contributors, or liquidity providers, with a proprietary token. This idea of "liquidity mining" has since spread to other decentralized applications (dApps) like Aave (AAVE) and Sushi (SUSHI). Early contributors may get first access to newly minted tokens.
• Launchpad initiatives: Platforms like Seedify, Binance Launchpad, and Polkastarter help organize and facilitate initial token offerings. These launchpads provide a controlled environment for pre-vetted projects, offering increased security for traders and developers.

Staying safe when searching for prelisted crypto

Investing in new startup crypto projects can be exciting and offer strong potential returns, but it's also one of the riskiest strategies in cryptocurrency. The lack of historical data on presale tokens, coupled with the possibility of scams, means investors could lose their entire investment. Even legitimate projects may fail to perform as expected, with some becoming unprofitable "zombie tokens" – cryptocurrencies that struggle to gain traction and see little trading activity.

Before buying prelisted cryptocurrencies, it's crucial to assess your risk tolerance and decide how much you're willing to potentially lose. The same goes for conducting thorough research on the project’s team, whitepaper, and roadmap (referred to as "doing your own research" (DYOR) in crypto). Transparent information, such as third-party code audits, developer profiles, and smart contract details, improves the chances of a project's legitimacy.

To further manage risk, some traders use a separate self-custodial wallet for high-risk activities like airdrops or IDOs. This strategy ensures that if one wallet is compromised, the majority of assets remain protected in a separate account.

Keep tabs on every crypto with CoinTracker 

Buying cryptocurrencies before a major CEX listing comes with unique tax considerations. Whether involved in ICOs, airdrops, or DeFi staking, traders need to keep detailed records to report their activities accurately. CoinTracker simplifies this process by syncing with crypto wallets and exchange accounts, making it easy to track every transaction on the blockchain. CoinTracker also generates compliant tax forms that are ready for use with CPAs or platforms like TurboTax and H&R Block.

Get started for free and discover how easy it is to stay on top of your digital assets.

Disclaimer: This post is informational only and is not intended as tax advice. For tax advice, please consult a tax professional.