“There are thousands of cryptocurrency projects on the crypto market and the list is increasing rapidly on a daily basis. It has become extremely difficult to identify the good projects over the scams which are making the crypto industry an even riskier investment option. There is a need to understand and identify some red flags by every investor before investing in the new projects.”
The ‘rug pull’ is the term given to the scams in the crypto market where the creators of a cryptocurrency creates a hype around their project and once the money comes pouring in, they quickly pull the rug beneath the investor’s feet and run away with all their hard earned money. A recent case of such a rug pull was the Squid Game project that resulted in a loss of $3.38 Million within a span of 1 week. Such scams bring bad names to the nascent crypto industry. Though, such scams must be viewed under the microscope to identify the red flags that these scams manifest so that such frauds can be prevented in the future.
Why are Scammers Successful?
There are multiple reasons why these scammers are successful and lets discuss them:
The Emotional Investors
Most of the retail investors invest in the crypto market under the influence of emotions rather than logical thinking. Crypto market has given such high returns in the past that the new investors become emotionally attached to the idea of getting millions of dollars overnight and their Fear of Missing Out (FOMO) makes them invest in projects without prior research.
The Social Media Hype
The investing strategy of the new investors today is governed by the social media hype and thus it’s very easy for the scammers to create multiple fake accounts on such sites to promote their project.
Lack of Research
The novice investors are in the habit of investing on the recommendations of others without doing a prior research on the crypto projects making it easy for them to be rug pulled.
How to Prevent Rug Pulls
Though, it is very difficult to prevent a rug pull as to educate the whole class of new investors is extremely difficult, you as an individual can prevent yourself from losses due to such rug pulls by taking following steps:
Always Research and Invest
Always research about the new projects before investing. Never fall prey to FOMO and the social media hype. Keeping your emotions at bay and keeping your logical thinking intact will help you in keeping away from such projects.
Identify the Red Flags
There are a number of red flags that are to be identified while researching a project.
- Always ensure that the team behind the project is not anonymous
- The price of the project has started to rise at an alarming rate, which is another red flag.
- The project has been just launched and there is a huge hype around social media without a solid project background.
- The information on the website or platform is misleading and fake.
Always Trade on a Reputable Exchange
The reputable exchanges have the policy of listing the cryptocurrency after proper research on the project and thus, trading on a reputable exchange will allow you to only invest in projects that are trustworthy and the chances of a rug pull are minimized.
Disclaimer: The article is meant for the educational purpose only and in no way it should be considered as financial advice. Own research on the topic is advisable.
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