Investing in the crypto market can be very profitable, but it also comes with many risks. These risks can come from factors such as scams (Rug Pull), "ghost" projects with no real value, or market manipulation. To help you better understand these risks and how to avoid them, we will explore each factor in detail.
1. Rug Pull Pull
Rug Pull are one of the most common and dangerous risks when investing in crypto. Rug Pull occur when a project development team creates a Token or a product, then raises Capital from the community by attracting investors. However, when the project has reached a large enough Capital level and attracted enough attention from the community, the founding team will perform a "Rug Pull pull" by withdrawing all the money from the project or dumping their Token . This action causes the value of the Token to plummet, or even lose its value completely. In many cases, investors will lose all the money they invested in the project without being able to get it back.
Rug Pull are not only financially risky, they can also damage trust and make it difficult to build a sustainable crypto community. So, to help you better understand Rug Pull, we’ll dive into how they work and how to avoid them.
How Rug Pull Works
Rug Pull often occur in small or newly launched projects, where founders can easily deceive investors without facing strict controls from regulatory agencies. Here is the basic way a Rug Pull works:
Step 1: Create a Token and attract investors: The founding team will issue a new Token and start a strong marketing campaign to attract attention from the community and investors. They can create attractive stories about the strong growth potential of the Token, or promise huge profits in a short time. These projects often use social media platforms, Telegram or Discord groups to create a shocking event to lure investors to participate.
Step 2: Capital and Community Building: As the community starts to join and the number of investors increases, the project will continue to build a large and growing community through promotional campaigns such as airdrops, Staking rewards, or other incentive programs to retain investors. During this phase, Token are traded and the value of the Token begins to increase.
Step 3: Rug Pull the rug: After attracting a large amount of Capital from the community and increasing the value of the Token, the founding team will decide to "pull the rug", which means they will sell all of their Token or withdraw money from the project. This will cause the market to be flooded with sell-offs, and the value of the Token will drop sharply or disappear completely. At this point, investors cannot Token Sale because the value has fallen to the point of no return.
Step 4: Disappear and leave investors behind: After the Rug Pull, the founding team may “disappear”, meaning they stop all public activities related to the project, delete communication channels, or change wallet addresses to avoid being traced. Investors will have a hard time recovering their lost funds because there is no transparency or accountability from the founding team.
A typical rugpull in the crypto market, the price of SQUID coin "crashed" in just 5 minutes.
Signs to identify projects prone to Rug Pull
To avoid Rug Pull, you need to be aware of some of the telltale signs of scammy projects. Here are some warning signs to look out for:
Shady founding team information: A very obvious sign of a Rug Pull project is a non-public or non-transparent founding team. If you can’t find information about the founding team or have limited information about them, this could be a red flag. Reputable development teams will always be open and have a clear history in the industry.
Incomplete or unclear whitepaper: The whitepaper is the most important document in assessing the viability of a crypto project. If the whitepaper lacks detailed information about the development plan, long-term goals, or Token specifications, this may be a sign of an unreliable project. Serious projects will usually provide a clear, detailed whitepaper with transparent information about the development strategy.
Marketing strategies and advertising gimmicks: Projects with excessive marketing strategies, using gimmicks that promise huge profits in a short period of time or creating hot events without any real basis can be signs of a Rug Pull. These strategies are intended to create fake excitement, stimulating investors to participate without any real basis.
Lack of liquidation and virtual trading: Projects with low liquidation , meaning it is difficult to buy and Token Sale on exchanges or Token that trade in very small volumes, can be easily manipulated or become the target of a Rug Pull. Check the volume of the Token and if it is too low or has unusual fluctuations, you need to be cautious.
How to Avoid Rug Pull Scams
Research the project carefully:
Read the whitepaper: The whitepaper is an important document that helps you understand the project's goals, technology, and development plan. A detailed and transparent whitepaper will help you evaluate the seriousness and potential of the project.
Check the founding team: Find out about the founding team members, especially the leaders and core developers. A founding team with experience and reputation in the crypto community will give you more peace of mind when investing.
Check liquidation: Avoid investing in projects with low liquidation , because if the market does not have enough buyers and sellers, you will not be able to withdraw your money when needed. A project with high liquidation will help you easily exit your investment when needed without suffering heavy losses.
Be careful with new projects: New crypto projects can be very exciting, but they also pose many risks. New, unproven projects often lack transparency and can be targets for scams. Always check the information carefully before participating.
Join the project community: A large and active community is a sign that the project has a serious and reputable development team. Join community groups like Telegram or Discord and get a feel for the community's engagement and enthusiasm for the project.
2. Project "Ghost"
In the crypto market, “ghost project” is a term used to refer to projects that do not have any real value. These projects can be created with the intention of scamming or simply to attract money from investors without having a real product or service. “Ghost” projects are projects that have no real development potential and do not bring any value to users or the market. These projects can cause investors to lose all the money they put in because they do not have a solid product, service or platform.
How Project "Ghost" Works
Ghost projects often have very obvious signs, and inexperienced investors can easily be fooled if they are not careful. These projects often have no real basis, no long-term development strategy, and are sometimes just short-term investment models with the purpose of fraud.
Creating a “fake” appearance: “Ghost” projects may create a grand appearance, such as a beautiful website design, full technical information and attractive whitepaper. However, it is all just a facade, there is nothing real behind it. They use powerful media tools to attract investors, promising large profits without any clear basis.
Lure investors with promises of huge profits: Ghost projects often promise to bring unimaginable profits in a short time. These promises may be very attractive, but in reality, they are often baseless. They are just tricks to attract investors quickly, without any product or service that actually works.
No Real Product: One of the most obvious signs of a ghost project is the lack of a real product. Ghost projects may exist only on paper, with promises of future products. However, you will never see these products actually developed or deployed. The project may focus solely on raising Capital without any real progress on building the product.
Founded in 2016, BitConnect was famous for its lending model and the creation of a Token called BitConnect Coin that could be exchanged for Bitcoin, promising to generate 40% interest per month and bring investors a profit of 3,700% annually. It was not until the price of BitConnect Coin dropped 92% on January 16, 2018 that the fraudulent nature of the platform became clear.
Signs of Recognizing a "Ghost" Project
To avoid falling into “ghost” projects, you need to know the warning signs. Here are some of the recognizable characteristics of these projects:
1. No clear product
Ghost projects often do not have any actual product or if they do, the product is very vague, unclear in purpose or feasibility. They may only provide general ideas or projects that are not fully developed. They do not provide a clear plan for how the product will be implemented and developed. In many cases, the product may only exist as a description or a pretty image, but without any actual functionality.
2. Anonymous or non-transparent development team
A very obvious sign of a ghost project is that the founding team is not public or has unclear information about the team members. The development team of a ghost project may be anonymous or have very vague information about them. The founding team may not exist or be anonymous with unverifiable information. To evaluate a project, you need to know who is behind it. A reputable development team will have a transparent history and can be found through articles, events, or previous projects they have participated in.
3. Unclear reasons for development
Ghost projects often lack a clear rationale for their development. They may have vague, unrealistic, or unfeasible goals. They will not have a specific solution to the problems they claim to solve. If a project cannot clearly explain why it exists or why it is important to the crypto market, it is most likely a ghost project. Promises of huge returns without any transparency or rational explanation can be a sign of a scam project.
4. Fraud through unclear information
Ghost projects often attempt to hide information or provide inaccurate data about the project's financial situation, how much money it has raised, or how it is being used. A clear sign of a ghost project is that a project is not transparent about how it spends or uses its Capital . These projects often do not disclose information about what they do with the money they raise, or they may simply "manage" the money to withdraw when they reach their goals.
How to Avoid "Ghost" Projects
To avoid investing in "ghost" projects, you need to have a smart and careful prevention strategy:
1. Research the founding team thoroughly
Before deciding to invest in a project, you need to learn about the founding team. Reputable and experienced founders in the crypto community will have a clear mark in the industry. They may have previous successful projects or have public, transparent activities. You should look for information about them on social platforms, crypto events or interviews. If you cannot find official information about the founding team, you should be cautious.
2. XEM review the whitepaper
The whitepaper is the most important document for evaluating the viability of a project. A good whitepaper will provide details about the project's goals, product, target market, and development plan. If the whitepaper lacks specific information or transparency, it could be a sign of a ghost project. You need to understand what the project wants to achieve, how the product works, and the development roadmap.
3. Only invest in transparent projects
Always choose transparent projects, with clear information about the founding team, product and development roadmap. Serious projects will provide full information and be willing to answer questions from investors and the community. If a project lacks transparency or specific information, it is a serious warning sign.
3. Market manipulation
Market manipulation is the manipulation of the value of an asset or Token through illegal or non-transparent strategies, with the aim of benefiting a small group of investors, while causing harm to other investors. Cryptocurrency market manipulation can take many forms, and these tactics are often sophisticated in order to defraud or cause unrealistic price movements that affect the entire market. These forms of manipulation can cause huge losses to inexperienced or unwary investors.
Here are some common forms of market manipulation in the crypto market:
Forms of market manipulation
Pump and Dump
Pump and Dump is a common manipulation tactic in the crypto market, especially for less popular or newly launched Token . This tactic works in two main steps:
Pump: A group of investors or institutions (usually “whales” - people who hold large amounts of Token ) buy a large amount of Token in a short period of time. This causes the Token price to increase sharply and attracts the attention of other investors. New investors often get caught up and start buying Token as well, leading to a sudden and strong increase in price. These “whales” often create false expectations about the Token’s growth potential, making participants think that this is a great opportunity.
Dump: When the Token price reaches a high, early investors will start to dump the Token they bought, profiting from the increase in price. This dump will cause the Token price to plummet, and new investors who participated in the initial pump will suffer heavy losses as the Token price plummets.
Risk: Unwary investors, especially those new to the market, can easily get lured into this game and end up suffering huge losses when the Token price plummets.
In just 1 hour, $OM lost more than 90% of its value, wiping out the 900x growth since 2023. Investment funds are suspected of "selling out" before OM's price collapse.
Wash Trading
Wash trading is a market manipulation practice in which investors buy and Token Sale to create false market volume and liquidation . The purpose of this practice is to create an illusion of popularity and liquidation of the Token, making other investors believe that the Token is actively traded and is popular in the market.
How it works: Investors create fake buy and sell transactions to create large volume , but in reality, they are just buying and Token Sale . This creates an illusion of liquidation and makes the Token appear attractive to other investors.
Risk: Wash trading can be a scam for investors who are not aware that the trades are fake. Investors can be fooled by seeing high volume and thinking that the Token has great potential, when in fact, it is just fake trades.
Statistics on wash trading value on Non-Fungible Token exchanges
Spoofing
Spoofing is a market manipulation practice in which investors place fake buy or sell orders on an exchange to influence market sentiment. The goal of spoofing is to create a false change in the supply and demand of a Token, making other investors believe that there is a large change in the value of the Token.
How it works: Investors will place large buy or sell orders with no intention of actually executing the trade. For example, an investor might place a sell order at a low price to create the impression of a large supply, causing others to Token Sale . Conversely, they might place a fake buy order at a high price to create the impression of large demand, thereby attracting sellers.
Risk: Spoofing can cause artificial price fluctuations and affect market sentiment. Investors can easily be fooled into seeing changes in the value of a Token without any real reason. When fake orders are canceled or not actually executed, the Token price can plummet, and investors will suffer losses.
How to avoid market manipulation
Here are some measures to help you avoid and minimize risks when facing market manipulation in crypto:
Be careful with sudden price fluctuations
If a Token experiences a sudden increase in price without any clear information to support that growth, it is most likely a sign of a pump and dump. If you notice a Token experiencing a sharp increase in price without any real reason or fundamental information behind it, you should be cautious and not rush to participate in that bullish trend.
Check volume
Check the volume of the Token on exchanges to see if there is any unusual growth. A sudden increase in volume without any apparent reason can be a sign of market manipulation such as wash trading. Do your due diligence and do not decide to invest based on high volume without transparency.
Don't join groups that generate ambiguous investment signals
Avoid participating in groups or media channels that promote “pumping” Token prices without any real reason. These groups can lead you into a manipulation game, putting you at great risk when the Token value plummets after the manipulation groups carry out a sell-off. Especially media channels that are not transparent or unverified.
Check project transparency
Always prioritize investing in projects that are highly transparent and provide clear information about the founding team, product, and development strategy. Reputable projects often have a large community and do not have abnormal price fluctuations due to manipulation.
Analyze market indicators carefully
Don't just look at price and volume, but also analyze comprehensive market indicators such as volatility, market depth, and other fundamental factors. These analyses help you gain a clearer view of the market and avoid being fooled by manipulation.
Fundamental analysis of a crypto project is not simply reading a whitepaper or XEM at a few financial indicators. It is a process of research, evaluation and comparison based on many factors such as development team, tokenomics, community, product features, competitors and potential risks. In a volatile market like crypto, understanding the nature and core values of the project will help you make wiser investment decisions, avoiding dangerous financial traps such as "ghost projects" or Rug Pull.
