As the crypto market keeps growing, meme coins are at the forefront, especially as more and more prefer them to make huge profits in a short time frame. But there are also downsides to utilizing them and the main ones are the scams and liquidity issues surrounding them, which could lead you to losses if you aren’t careful.
In this article, we will look into the types of scams you could come across in the meme coin sector and how you can effectively avoid them.
Types of Meme Coin Scams To Watch Out
Memecoin scams come in a wide range of forms, each aiming to rip you off of your money. Here is a list of the top scams in the crypto sector that you need to watch out for.
1. Coordinate Shilling
Coordinated shilling refers to a situation where multiple individuals work together secretly to promote a specific crypto project. In most cases, they are paid to do so.
Key Points
- The individuals employing this don’t disclose that they are being paid to promote and create an illusion of positive sentiment surrounding a newly launched meme token.
- By employing this tactic, the widespread acclamation surrounding a meme coin can be viewed as credible.
- The main objective behind this scheme is to artificially inflate the price of the crypto coin in the market.
How To Avoid
- Avoid a project if the same few accounts on social media are continuously prompting a meme coin project.
- If a claim about a new meme coin is overenthusiastic and deemed urgent, be careful around that project.
- If you find high engagement on social media of a meme coin project without any credible evidence backing its value, try to stay clear of it.
2. Rug Pulls
Rugs pulls are one of the most common and dangerous scams in the crypto realm, especially in the meme coin sector. It is a scam where a project developer withdraws all the funds from a crypto project suddenly, leaving investors with tokens having little to no value.
Key Points
- In this scam, the developers create a project and lure investors to it by promising high returns or other technologies.
- After the funds for the meme coin project are raised, the developers withdraw all its liquidity.
- The rug pulls can cause significant financial damage to investors and can also tarnish their trust in the crypto sector.
How To Avoid
- Beware of manipulative practices like hyping a meme coin’s price and giving a false sense of security.
- Exercise extreme caution when investing in a new and less-established crypto project.
- See if the meme coin project has transparency issues regarding its developers and project audits.
- Be cautious around tokens with unlimited supply or lock trading.
3. Celebrity/ Influencer Meme Coins
The thing about meme coins is that anyone can create them. Some might even consider this a good quality but in reality, it is anything but good. Various Instagram celebrities and other influencers have more than once utilized them to rip off people.
Key Points
- The perpetrator creates a new meme coin with a catchy and humorous name that centers around a viral theme.
- They then promote these meme coins through various social media platforms like Twitter, YouTube, or other forums.
- After the coin gets to a specific height followed by this hype, the perpetrators dump their share of the coin, leaving numerous investors with losses.
How To Avoid
- Look out for meme coins aggressively promoted on social media.
- Check if the wallets associated with these tokens contain large portions of them.
4. Pump & Dump
A pump and dump is a crypto scam where scammers artificially inflate the price of a meme coin through false or misguided positive sentiment. This is done to create a buying frenzy among potential investors and traders to drive its market value to a specific height, after which the scammers will sell their holdings, handing a loss to the other investors.
Key Points
- The scheme relies on creating hype through social media and influencer endorsement.
- In such cases, the scammers will likely hold a significant portion of the meme coins.
- It can be fatal for some investors due to the sudden crash of the token, resulting from scammers selling their holdings.
How To Avoid
- Stay clear of tokens heavily promoted on social media with unrealistic promises.
- Try to invest in coins with utility rather than the ones driven by hype and popularity.
- Be wary if you come across a coin with sudden price surges followed by rapid declines.
5. Fake Partnerships
Fake partnerships involve scammers falsely claiming collaborations with reputable companies or other famed individuals to boost a coin’s credibility and attract more investors.
Key Points
- The scammers will announce a partnership that does not exist in the first place.
- Used to create a sense of legitimacy and encourage investment.
- It will result in the investors losing a chunk of their capital when the partnership is revealed as false.
How To Avoid
- Independently verify any partnership announcements when they are announced.
- Be wary of meme coins that are heavily reliant on celebrity or influencer endorsement.
- Look for concrete evidence of collaboration, not just announcements.
How To Report Meme Coin Scams?
Reporting a meme coin scam is one of the most helpful things you could do in the sector as it could potentially save others from falling into these fatal traps. It could even lead to the arrest of the perpetrator behind these heinous acts. So, let’s look into how you can report them to the authorities.
1. Gather Evidence
The first thing to do is gather as much evidence as you can about the potential scam you come across. This might be communications, transaction records, or even website links.
2. Contact Authorities
Various authorities investigate crypto scams like the SEC, CFTC, IC3, and the Federal Trade Commission (FTC). Contact them through hotlines or through their official website.
3. Provide Evidence
Provide the evidence you gathered and submit a report detailing the time and place you encountered the scam, and all the details you noticed regarding this scam. If you spotted anything that could help identify the culprits behind it, provide that also.
Final Remarks
Meme coins are exciting but the risks associated with one are extremely high, especially as everyone in the crypto market is trying to outwit one another for potential gains. Some people even use malicious scams, which could pose irreversible damage to your capital.
Staying informed on such scams and spotting them can get you a long way without any risk to your investment capital. So, try to refer to the above ones with utmost care and conduct careful research before going with the flow and investing in a meme coin. For further insights into the crypto world and the various dangers it poses to you, stay tuned.
