Early Investing

How to Avoid Crypto Scams

How to Avoid Crypto Scams
By Allison Brickell
Date November 10, 2021

You’ve heard of Dogecoin. Now get ready for Squid Game. 

Or rather, don’t get ready for it. Because the Squid Game token is a scam.

The token — based on the popular Netflix series Squid Game — experienced a wild and short-lived roller coaster ride over the past few weeks. The coin launched its presale on October 20. According to CoinMarketCap, its price traded between $0.013 and $4 from October 26 to October 29 before climbing to around $38 on October 31. Then on November 1, it skyrocketed to a staggering $2,861 before crashing to $0 the same day.

A warning at the top of the token’s page on CoinMarketCap now reads: “We have received multiple reports that the website and socials are no longer functional and that users had previously been unable to sell this token on Pancakeswap. There is growing evidence that this project has rugged.”

In crypto parlance, “rugged” means a token’s creators have abandoned the project and run off with investors’ money. The token’s anonymous creators reportedly collected more than $3 billion from investors. One man in Shanghai lost his life’s savings.

How can crypto investors avoid scams like this? 

Two words: due diligence. Here’s what I mean by that.

Research the Token

First, research the token/crypto project itself. How long has it been around? What, if anything, is it tied to? Generally speaking, I would avoid investing in a brand-new token of any kind. The hype and skyrocketing price might make you feel like you’re missing out. But if the coin is truly worth investing in, it will stick around for the long haul. If it’s still around in a year and isn’t at the bottom of CoinMarketCap’s ratings, it should be a safer bet. 

You should also research the team behind the token — just like you would if you were vetting a startup. How experienced are these founders? Have they created a successful product in the past? How much progress have they made on this token? If a project is new and asking investors for money before it has even developed a test version of its software or coin, be very cautious. 

Research the Pushers

Second, research the people who are promoting the token. Are they seasoned crypto investors or just Twitter trolls? Are they members of the crypto community or do they seem to be salespeople who don’t really understand crypto? Are there reputable members of the crypto community who seem interested in this coin? (Hint: Elon Musk doesn’t count as a knowledgeable member of the crypto community.)

Don’t Fall for FOMO

Finally, don’t give in to a fear of missing out. 

When a new coin gets hyped up in news coverage and on Twitter, it can be tempting to jump on the bandwagon. But in a space like crypto, there are new projects emerging all the time. Sorting through which coins are reputable and trustworthy and which are just pipe dreams takes time and effort. So do your research and don’t get caught up in the hype.

The next time you come across a hot new coin and are unsure of whether to buy it, do your research. Proceed with caution. And try to block out the noise. 

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