- While pump and dump scams have always been around stock markets, the year 2021 showed that the crypto markets aren’t immune from them either.
- For investors, having all knowledge about the market and tokens, detailed research, and updates in the crypto market is very crucial.
Cryptocurrencies were among the best-performing assets in the year 2021 as more and more investors started putting their money in digital currencies to make a quick profit. However, investing in crypto assets is a risky affair that is prone to wild price swings. Therefore, maintaining a balanced crypto portfolio of various cryptocurrencies can help against extensive losses.
As cryptos are still unregulated, it is prone to price volatility and at the same time are exposed to various common pump-and-dump scams or rug pull scams. To ensure one doesn’t make a poor investment choice, it critical for investors to do their respective in-depth research, study market trends, and understand how favourable it will be to invest in cryptos.
Scams in cryptos
While pump and dump scams have always been around stock markets, the year 2021 showed that the crypto markets aren’t immune from them either. The idea behind these scams is that investors with large crypto holdings promote these assets to encourage further investments, which results in a price surge. However, when the prices reach a certain level, they often wield their influence to pull down the price of the crypto, leaving crypto prices to crash.
The prominent examples of the pump and dump scam are the Squid Games or the SaveTheKids token.
Another common scam in the crypto circle is the “rug pull”. Rug pull refers to a situation when a crypto developer intentionally abandons the project, making merry with investors’ funds and run away with investors' funds
In fact, scams in 2021 were to the tune of US$7.7 billion worth of cryptocurrencies, according to leading research firm Chainalysis. In its report, 2022 Crypto Crime Report, Chainalysis reported that of the total US$7.7 billion amount involved in scams, US$2.8 billion (36%) were ‘rug pull’ cases.
How to manage your crypto investments
1. Don’t believe in everything
Doing in-depth research about a token is very important to remain profitable in the crypto market. Fear of missing out (FOMO) and Fear, uncertainty, and doubt (FUD) are some common terms in the market and can influence your choices, tempting you to take unjustified decisions. As an investor, you should always be rational about a token and keenly watch its developers’ plans and goals.
2. Diversify your portfolio
A good portfolio management strategy is to diversify your investments. Even if you are confident in a particular asset, you should never invest all your money in one asset. You may choose to hold various assets, such as equity, bonds, ETFs, cryptocurrencies, and others for the long term to diversify your portfolio.
Even though you have put together all the strategies and have all the information, a sudden hack, event, or tweet (from celebrities) can affect the crypto prices. Therefore, it’s important to plan beforehand and take steps to mitigate risks.
3. Develop an exit strategy
Every good investment plan should have an exit plan because a winning strategy will cause you to stick to it which may affect your investment plan and may also lead to losing profits. So as an investor, you should think about your exit plan even before the entry plan.
4. Use a trusted exchange
Crypto exchanges are the platform that allows investors to trade cryptocurrencies. Before investing in cryptocurrencies make sure that you are trading on an exchange with a good reputation. Look for accessibility and security offered by the exchange, as the crypto market is not backed by any central regulations. So, before starting trading cryptocurrency from any exchange, check its background.