Crypto scams keep reinventing by the year, duping millions of investors. It takes a combination of witty words and convincing ploys, but they are often effective. Some are as brazen as repeating the same scam under different names. How can people get ahead of them?
Get the Basics Right First
The basic principle of investment is committing funds to an asset in an expectation of future return. This future return can be defined or guided in a contract at the point of purchasing the asset. For most regulated assets, the expectation can fall within a range of 5% to 20% subject to the economic environment.
Considering that some assets break the norm and increase significantly over time, it’s normal to expect returns from any asset. The contrary is also true - that the asset can lose value in a given period. It can later on recover its lost value and return a modest profit.
Crypto scams thrive on defying the basics. They offer “guaranteed” returns within a week or month. These guarantees are unfounded. They hook people by “repaying” the first investment or two but end up rug-pulling the third one. Avoid the trap of “guaranteed returns” at the first sight, because the basics of investment leave room for gain or loss.
Manage Your Expectations
In addition to the basics, investor psychology is the next critical aspect of avoiding scams. Investment, in principle, takes time to yield a profit. While some investments can return a profit in less than a year, others take between five and ten years to show meaningful returns. Consistent analysis and study of an asset will show its performance or value over time.
Taking BitcoinBTC as a digital commodity, its value rose from cents in 2009 to a high of $69,000 in 2021. Many people sold off large holdings of Bitcoin in its early years when its price would dip below that year’s high. Its future was uncertain, with no guarantees of a set price that could spell a profit.
Considering EthereumETH as a crypto asset, its peak in the bull market of 2021 was over $4,500. It was founded in 2015. Many other cryptocurrencies or tokens are built within its diverse ecosystem.
Crypto scams often copy or wrongly cite Bitcoin and Ethereum as their premise of high returns. They call their “offer” the next thing you must buy into after those two cryptocurrencies. By imposing a misplaced expectation, they mislead unsuspecting investors to hope they will cash in on the next enticing profit.
Commit Your Funds to Different Investments
Funds with a purpose are more useful than those without. Financial literacy and accountability often guide the responsible use of financial resources. A personal budget, for example, can cover recurrent expenses, investments, insurance, and miscellaneous responsibilities. Aside from financial instruments, it’s healthy to invest in a holistic lifestyle. This includes meaningful courses, training, mentorship, experiences, relationships, health, and hobbies.
Such a holistic commitment of financial resources to holistic growth brings the balance to have restraint or boundaries where they’re needful. It’d be difficult, for instance, to gamble, or blow through money fast, when there’s a steady discipline in more than one area.
The irony of a crypto scam is that they target “idle” or uncommitted funds. Scammers insist on a person substituting something “unimportant” for the “deal of a lifetime”. By establishing personal financial boundaries with a firm commitment to meaningful personal goals, you can get ahead of the likelihood of being scammed.
The said, “deal of a lifetime” will pale in comparison to a holistic lifestyle.
Carry out Due Diligence
Being able to verify a project or asset’s existence or authenticity is easy in a simple search. In a sea of information, and amid false impressions, it’s needful to cross-check the people involved in a specific project. Financial records, notary, or smart contract data can be accessed through various channels and platforms.
Due diligence is a simple way of ensuring that a project, asset, or company is an actual reflection of what’s presented about it. In last week’s emerging crisis of FTX’s downfall, an inquiry of due diligence into its financial state exposed gaps in its balance sheet. It failed to meet vital criteria for liquidity, and the rumors of its insolvency worsened the situation. After about $6 billion in withdrawals, the exchange could not keep up with its cash flow. It filed for Chapter 11 bankruptcy.
Its situation was concealed until the key staff began to resign, and questions about its financial standing gained ground. When things didn’t add up, an unfortunate series of events led to its collapse. It’s unfortunately not the first crypto project to do so. Others had clear warning signs from over-hyped token sales and opaque dealings.
Crypto scams often lack coherent and consistent facts about their operations. Due diligence will point them out early enough.
Practice Contentment
As an investor, it’s vital to take gains when they come. Greed is often the best way to keep anticipating a profit past its viable window. Moreover, it brings misjudgment to analysis, misinterpretation of seemingly obvious facts, and a success bias.
Investing is a lifetime journey. Few people are fortunate to make significant gains in a short time. What is wise is learning from those who have, rather than trying to copy their moves. Contentment is the key to taking a profit at 15% or 75% before that asset drops by another 30%. Rarely is it possible to time that point at which the asset price will drop.
In a bear market, as this year’s with various stocks and asset categories down, the best thing to do is find undervalued assets, and begin to invest in them for the long haul. For others, the best thing to do in a bear market is to upskill or increase the value of their time so they can earn more income.
Instead of relying on that inflated promise of a crypto scam, invest in your personal growth.
Roselyne Wanjiru