Crypto Expert Shares How to Spot a Crypto Rug Pull Before It's Too Late

Rachel Curry - Author
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Apr. 20 2022, Updated 2:59 p.m. ET

It's easy to get hyped about an altcoin. Cryptocurrency investors who backed cryptos like Dogecoin and Shiba Inu at the right time are laughing all the way to the bank for taking their investments pretty darn close to the moon—even if just for a little while.

But others, like those who invested in the Squid Game cryptocurrency in 2021, aren't as happy.

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When a crypto rug pull happens, like what happened with the SQUID coin, it can leave investors feeling broke and beaten down. That's why it's crucial to be aware of the red flags.

What happens in a crypto rug pull?

squid game crypto rug pull
Source: Noh Juhan | Netflix

In SQUID's case, the creators quickly built a coin and crypto-buying platform and set up an online presence. The biggest red flag was that investors could only buy in and not sell their coins.

The scammers did this intentionally to prevent the coin from crashing before they had a chance to make off big. Those who invested didn't realize that they wouldn't be able to sell their coins. By the time they were in, it was too late.

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Like SQUID, many crypto scams will try to get media attention to help solidify their position as a reputable investment. That's why platforms like CNBC, Fortune, Business Insider, Yahoo News, and BBC all talked about how SQUID had soared a whopping 83,000 percent in a matter of days.

You can see a similar pattern with celebrities who back questionable coins, like Logan Paul and Dink Doink.

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In every case, the scammers try to make out quickly. Brand-new coins with a cloudy backstory are more likely to be crypto rug pulls than other more established altcoins that have fluctuated over time.

More recently, a rug pull involving the NFT collection Frosties resulted in the arrest of two scammers who stole $1.1 million worth of cryptocurrency from investors.

Here's how to spot a crypto pump-and-dump scheme:

Even though many investors realized that SQUID was sketchy, others didn't. According to crypto expert and co-founder of the Many Worlds token Steven Bumbera, there are a few things you should look into before investing in a new crypto token.

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next big crypto
Source: Coinbase

First, check the dev team and if the contract is audited, make sure it's by a reliable source. Secondly, spend some time in the white paper, and look for errors.

For a more technical approach, Bumbera also recommends checking out the "tokenomics."

"If you see a wallet that owns 50 percent of the supply and it is unlocked, then that is terrifying," Bumbera told Market Realist exclusively. "That means someone on the other end can sell half of the tokens in existence whenever they want."

And lastly, explore the community because "the community is always the most important and most trustworthy part of any project."

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