The cryptocurrency market is a dynamic and exciting space of innovation and opportunities. However, it’s also common with misleading projects that can kill inexperienced investors. This article will explore common tactics weak or specious crypto projects use to cheat newcomers and provide insights on avoiding falling into these traps.
Cryptocurrencies are digital assets that depend on blockchain technology for their operation. Blockchain is a decentralized and set ledger that records all transactions transparently. While projects are allowed in the crypto space, many scams and fraudulent schemes exist.
Massive Supply Inflation
Most cryptocurrencies have some degree of inflation built into their protocols. Inflation is necessary to motivate miners and branching operators, and it can also fund long-term development. However, some projects inflate their token supplies at an alarming rate, leading to a supply-demand imbalance that can negatively impact the token’s value.
This often occurs with newly launched projects where only a small portion of the total token supply is initially unlocked. These projects tend to have low market capitalization but rapidly inflate their supply, resulting in a characteristic pattern of a sudden price spike followed by a prolonged decline.
New projects often use marketing tactics to create initial hype, attracting investors who may not fully understand the variations of early-stage projects. This initial excitement can quickly give way to massive selling pressure as early investors look to exit their positions.
Early Bird Pricing
Many crypto projects rely heavily on early-stage investors, including venture capitalists, angel investors, and incubators, to fund their development. These early investors often receive a substantial discount compared to public buyers. The hope is that when the project launches on an exchange, retail investors will join in and boost the token’s price, allowing early investors to profit.
Early investors can sometimes redeem their initial investment on the first day, even though they may be subject to investment schedules and only receive a fraction of their tokens at the token generation event (TGE).
It’s essential to be cautious when projects unknown the prices that seed and private sale investors paid for their tokens, making it difficult to assess the fairness of the public sale pricing. Quality projects often choose value-adding investors who can contribute to growth, marketing, and development, justifying the discounts they receive.
The Airdrop Scam
Airdrops are a common marketing tactic in crypto, where projects distribute tokens to selected recipients, often based on their activity or holdings. Scammers exploit this by creating bogus projects that distribute tokens to unsuspecting users.
These scams typically involve sending tokens to random wallet addresses and creating the illusion of liquidity by setting up fake trading activity on decentralized exchanges. However, users attempting to trade these tokens often find that only whitelisted addresses can send and trade them, leading to frustration and potential security risks.
To avoid falling for airdrop scams, it’s essential to exercise caution and ignore random airdrops that are likely phishing attempts or hacking schemes.
Market Maker Manipulation
Many crypto projects employ market makers to ensure liquidity in their markets. While market makers can contribute to a project’s overall health, they can also manipulate prices in the short term. Market makers may be instructed to maintain the token price within a specific range, creating bullish patterns on price charts to attract investors.
However, this manipulation is often short-lived, as many projects can only afford market-maker services for a limited time. After the market maker’s involvement ends, the token’s price may revert to its natural trajectory, often downward.
For new investors, focus on a project’s fundamentals rather than being shaken by short-term price variations influenced by market makers.
The cryptocurrency market is full of opportunities, but navigating it with caution is essential. Deceptive crypto projects often employ massive supply inflation, early investor discounts, airdrop scams, and market maker manipulation to attract unsuspecting investors. By developing a deep understanding of the crypto landscape and being observant, newcomers can protect themselves from these misleading practices.
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