How to Identify Deceptive Crypto Projects: A Guide for New Investors

 The cryptocurrency industry is booming with innovation and excitement, but along with genuine game-changers, there are also numerous deceptive and overhyped projects that can lead to losses for new investors. In this new article, we will explore some common ways in which weak or deceptive crypto projects dupe unsuspecting newbies, and how investors can avoid falling victim to these scams.



Massive Supply Inflation



Some crypto projects inflate their token supply at an enormous rate, causing a significant imbalance between supply and demand that can crush the token’s value. This often happens with newly launched projects, whereAt the token creation event, a very small portion of the overall quantity is released (TGE).These projects typically have a low market capitalization, often under $100,000, but experience a pump in price immediately after launch, followed by a perpetual crash as inflation reduces demand. Many new projects use marketing tactics to fuel hype around their token, but this hype is often short-lived, leading to massive selling pressure as early-stage investors look to exit their positions. To avoid falling for this trap, investors should thoroughly research a project’s tokenomics, including the inflation rate and total supply, and be cautious of projects with inflated supplies.


Earlybird Pricing



Most crypto projects are funded by early-stage investors, including venture capitalists, angel investors, and exchange partners. These early-stage investors often receive a large proportion of the token supply at a significant discount compared to public sale participants. When the project lists on an exchange, the hope is that retail buyers will jump in to support the price, allowing early-stage investors to exit their positions at a profit. In some cases, early-stage investors may even recoup their entire initial investment on the first day of trading, despite being subject to a vesting schedule and only receiving a fraction of their tokens at TGE. Some projects may obfuscate the prices that early investors paid for their tokens, making it difficult for public participants to see the market conditions they are facing. While some projects may justify the discount for value-adding investors, investors should be cautious of projects that offer excessive discounts to early-stage investors, as it may indicate a potential scam or unfair advantage for insiders.


The Airdrop Scam



Airdrop scams are a common tactic used by scammers to target users of smart contract blockchains like Ethereum, Binance Smart Chain, or Solana. In this scam, a bogus project will automatically distribute a large number of tokens to a randomly selected list of recipients, often based on their recent activity or cryptocurrency holdings. The scammer may set up a liquidity pool and simulate trades to make the token appear highly liquid and valuable. However, when users attempt to sell these tokens on a decentralized exchange (DEX), they may findthat they are unable to do so because the tokens can only be traded between whitelisted addresses.only whitelisted addresses can trade the tokens. In many cases, the scammer will direct users to a website where they need to connect their wallets to unlock their tokens for trading, leading to potential scams or hacks where users may hand over their identity details or fall victim to token transfer scams. To avoid falling for this scam, users should be cautious of random airdrops and ignore them, as they are often phishing or hacking attempts.


Market Maker Manipulation



Some crypto companies may use market makers to manipulate the market and create a false impression of demand or liquidity for their tokens. Market makers are entities that provide liquidity to a market by placing buy or selling orders, and they may use various tactics to create artificial price movements or volume. This can mislead investors into thinking that a token is highly liquid and valuable, when in reality, the market maker is manipulating the price. To avoid falling for this manipulation, investors should carefully researchand analyze the activities of market makers in the projects they are interested in. Market makers are entities or individuals who provide liquidity to a market by placing buy and sell orders for a particular token. However, in some cases, market makers can engage in manipulative activities to artificially pump or dump the price of a token for their own benefit.


One common tactic used by market makers is wash trading, where they trade with themselves to create a false impression of high trading volume and price activity. This can lure unsuspecting investors into thinking that the token is in high demand and create a sense of FOMO (Fear of Missing Out) among potential buyers. In reality, the trading volume and price movement may not be genuine, and the market maker may be manipulating the market for their own profit.


Another manipulation tactic used by market makers is spoofing, where they place large buy and sell orders with no intention of in reality executing them. This can create a false impression of market demand or supply, leading to price manipulation. For example, a market maker may place a large buy order to drive up the price, only to cancel it after other investors have jumped in, leading to a sudden drop in price.


To avoid falling victim to market maker manipulation, investors should carefully review the trading activities and patterns of market makers in a project. They should look for any suspicious trading volume spikes, price manipulation patterns, or inconsistencies in trading activities. It’s also important to research the reputation and track record of market makers associated with a project and verify their credentials.


Conclusion


The crypto industry is exciting and dynamic, but it also has its fair share of deceptive projects that can prey on unsuspecting investors. By developing a deeper understanding of the crypto landscape and being aware of the common tactics used by deceptive projects, investors can make informed decisions and protect themselves from potential scams. Proper research, due diligence, and skepticism are crucial in identifying genuine opportunities and avoiding deceptive crypto projects. Always remember to exercise caution, verify information from multiple sources, and seek advice from trusted experts before thinking to invest crypto space.

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