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

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Nov. 2 2021, Published 10:55 a.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, 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.

SQUID coin proves fruitless as whales make out with profit

The anonymous creators of SQUID crypto, and the holders of most of the available coins, sold their positions and made out with $3.38 million in a huge crypto scam. This move is called a "rug pull," or a type of pump-and-dump scheme.

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At its highest, SQUID hit $2,861 per coin. By Nov. 1 and 5:40 a.m. ET, the price crashed to zero. The "whales," or the people who owned most of SQUID, sold their positions and made out with the remaining liquidity. Innocent investors lost their entire investments.

What happens in a crypto rug pull?

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 has 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.

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.

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How to spot a crypto pump-and-dump scheme

Even though many investors realized that SQUID was sketchy, others didn't. Here are some red flags to watch as you search for the next big altcoin.

  • How old is the crypto's website? Does it have spelling and grammatical errors (like SQUID)? A newer website that looks thrown together is a red flag. Make sure that there's some type of prospectus you can read as well.
  • How old are the crypto's social media profiles? Can you interact with the accounts? SQUID's Twitter was closed to replies.

  • Have other investors (non-insiders) been able to successfully sell their positions? If you can't sell, you might as well be making Monopoly money.

  • Has the crypto increased in price dramatically in just a few days or weeks? We're talking thousands or even tens of thousands of percentage points.

  • Check the coin's liquidity. If it's extremely low, don't bother. A legitimate coin should have high liquidity.

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