How to avoid being affected by a crypto rug pull

Introduction

A crypto rug pull refers to criminal activity in which the developers of a crypto project run away with all of the funds invested by investors in the project. Nothing can be done to prevent such activities over a decentralized network trading bot. The lack of a central authoritative figure makes it harder to point fingers at people definitively. Thus, crypto investors need to identify potential projects subjected to rug pulls. However, a lack of definitive markers can point towards a potential fraud; there are certain pointers you could look for. These pointers might help you avoid being affected by crypto rug pulls. Let us delve deeper into this subject matter and find out how you can avoid being affected by a crypto rug pull.

Identify their liquidity index.

You can analyze the liquidity pool to ensure if it can be subjected to a crypto rug pull or not. The liquidity pool is analyzed to facilitate this, and the price of a cryptocurrency is determined based on the available balance. The sign of a currency that is likely to have its rug pulled usually has limited liquidity in the market. Healthy cryptocurrencies that are safe to invest in have millions of liquidity in total.

Stay calm during the FOMO season.

The scammers utilize Fear of missing out to propel the prices of their coin and then pull the rug. To do so, they invest a lot of money into their coin to drive its price up. This creates interest among the investors, and because of FOMO, they invest in this, which drives the currency’s price even more. Once the prices of a currency reach a certain level, the people behind the currency take out the investments, which drive the price of these currencies to zero. This is how scammers leverage FOMO to make profits in the crypto industry.

Do your Research

You must research the developers of the cryptocurrency before you invest in it. The majority of fraudulent developers tend not to provide personal information and stay anonymous over the web to avoid the repercussions of committing a crypto crime. You should invest in cryptocurrencies that are linked to credible developers and investors.

Look out for coins with matching names.

If you intend to invest in the crypto industry, look out for cryptocurrencies with similar names. There are many coins with similar names. Shiba Inu, the original coin, has faced the onset of many fake counterparts, such as Wakanda Inu and Mufassa Inu. Careful investment is needed for currencies with a name similar to others and identifies which one is credible.

Other important factors that need to be identified

One must be aware that most of these frauds arise because of cryptocurrencies that appear out of nowhere and have a lot of hype around them. Investors need to look for such currencies and identify the fishy ones. Moreover, one must also not fall into the trap of blindly influencing strategies shared by influential personalities.

During the Bitcoin Era, cryptocurrencies serve as one of the most profitable assets. The hype around cryptocurrencies like Bitcoin and Ethereum has given thousands of cryptocurrencies. Out of the thousands of currencies available in the market, only a few are legit and provide profits. Many currencies have faced crypto rug pulls in history, and more are bound to occur. To avoid being affected by one, you must take certain steps, including identifying liquidity related to a currency. Currencies with high liquidity tend to be legit. You must also not give in to the FOMO caused by the suddenly rising prices of cryptocurrencies out of nowhere. This is most probably a strategy played by the developers to popularize the currency. Once enough investors put their funds in the currency, the developers can run away with their investments. You should also research the developers and find out if they are credible or not before investing in the currency. This is how you can avoid being affected by a crypto rug pull.