Having a good understanding of cryptocurrency investing means keeping an eye out for fraudulent projects that threaten to deplete your assets overnight, also known as pump-and-dump schemes.
Learning about the cryptocurrency ecosystem is critical for investors during a bear market pending a bull cycle.
In February this year, celebrities Jake Paul, Soulja Boy, and Nick Carter, among others, were being sued for their involvement in the SafeMoon crypto scheme. The claims said that the contracted stars made “false or misleading statements” to encourage fans to invest in the digital currency.
SafeMoon LLC, the company behind the $SAFEMOON token, is currently facing a lawsuit along with several famous promoters and social media stars for allegedly deceptively promoting and selling a fake scheme. The company is accused of collaborating with celebrities and others to make the investment appear legitimate and attract investors on social media, while “hiding its control” over the tokens being sold.
How Pump-and-Dump Scheme Works
Cryptocurrency pump-and-dump is an orchestrated fraud that involves tricking investors into buying artificially inflated tokens that are often marketed and promoted by celebrities and social media influencers. The SafeMoon token is one of the most high-profile examples of an alleged pump-and-dump scheme involving prominent celebrities such as Nick Carter, Soulja Boy, Lil Yachty, and YouTubers Jake Paul and Ben Phillips.
Once investors have bought the tokens at inflated prices, the people who own the most tokens sell them, causing the prices of the tokens to drop immediately. While scammers disguise pump-and-dump schemes under the guise of creating the next batch of million-dollar cryptocurrencies, savvy investors have the advantage of identifying and avoiding their involvement.
Pump-and-dump schemes are often accompanied by false promises around three broad categories: solving real-world use cases, exorbitant guaranteed returns, and open endorsements from celebrities and influencers.
The long-term success of a cryptocurrency largely depends on the use cases it serves. Like this, people who support pump-and-dump projects often get involved by highlighting the use cases the token is meant to serve. In addition, these types of schemes often attract celebrities through advance payments of cash and internal project tokens.
Advice: “Do your Own Research”
Binance, the largest cryptocurrency exchange in terms of trading volume, also warned investors not to follow investment advice from celebrities and influencers. On Twitter, Binance posted that, “Superstars ≠ crypto experts. Music artist @JBALVIN says ‘do your own research’. On 2.13 when big names try to give you crypto advice — 🚨 sound #CryptoCelebAlert and grab 1/2222 NFTs of basketball star @JimmyButler!”
In the next bull cycle, traditional and crypto investors around the world will step up their efforts to recoup their losses from the ongoing bear market. Knowing this information, scammers will try to find opportunities to trick unsuspecting investors by presenting unrealistic returns. As a result, researching (DYOR) is one of the best cryptocurrency tips.
Musk under Investigation?
Elon Musk was recently accused of manipulating cryptocurrency prices by prominent South African billionaire businesswoman Magda Wierzycka.
Wierzycka believes that Musk’s social media activity and its implications for the price of Bitcoin (BTC) should have made him the subject of an investigation by the United States Securities and Exchange Commission. He believes that Musk knowingly inflated the price of Bitcoin through tweets, including those mentioning Tesla’s $1.5 billion purchase of BTC, and then “sold much of his exposure at the peak.”
By Audy Castaneda
