How to Manage Your Risks When Investing in Cryptocurrency?

a rug pull</strong></a>, in crypto!</p>\n<p>Imagine that, one day, while browsing Reddit, you’ve stumbled upon a brand new crypto project - somebody made a post about a token that was just launched a few hours ago. It looks great, and there are multiple people commenting on how it will surely “<strong>go to the moon</strong>”!</p>\n<p>Inspired by all these comments and not wanting to miss out on a potentially great investment opportunity, you decided to go all-in, and invest your savings into the token. While you went to bed seeing your investment increasing tenfold, the next morning, you wake up to see that your new tokens are now worth but a few cents. This is often what a classic rug pull looks like.</p>\n<p>In this section, we are talking about rug pulls. I’ll explain the concept of what a rug pull is, in crypto, and give you a few examples of what classic rug pulls look like! In the end, I’ll also tell you what to look out for, when you suspect that a project might be a future rug pull.</p>\n<p>Let’s get to it!</p>\n<h2>What is a Rug Pull?</h2>\n<p>So, what is a rug pull in the world of crypto, exactly?</p>\n<p>Well, to put it in one word, it’s theft - <strong>literal theft</strong>. However, the definition of the term is also rather simple - it’s when the developers or project owners run away with people’s investments. A typical example of a rug pull would be that which I’ve mentioned in the introductory part of this section.</p>\n<p>Say, you’ve bought $100 worth of a token called “DefinitelyNotARugPull”. It’s a brand new project, but you’ve noticed that it has a lot of hype surrounding it, already - Reddit comments, Tweets, likes and upvotes, and so on. They even have a flashy and functional website!</p>\n<p><img style=\"display: block; margin-left: auto; margin-right: auto;\" title=\"What is a Rug Pull in crypto: An example of a Rug Pull.\" src=https://www.bitdegree.org/"https://assets.bitdegree.org/crypto/storage/media/what-is-a-rug-pull-1.o.jpg/" alt=\"What is a Rug Pull in crypto: An example of a rug pull.\" width=\"1000\" height=\"289\" /></p>\n<p>All of these things can be used to lure unsuspecting investors into a trap. Once you bite the bullet and actually buy $100 worth of this new token, its price may rise for the first few hours or days, sure. This is just the period when the developers are generating hype, and trying to get as many people to buy in as possible.</p>\n<p>After those initial few days, however, your funds could be gone in <strong>a matter of minutes</strong> - in other words, you might get rug pulled. There are actually a few ways of how this would look like, so let’s explore the most popular methods of rug pulling, shall we?</p>\n<h2>Developers Selling their Tokens</h2>\n<p>Undoubtedly the most common method of how rug pulls are executed is by developers or companies behind the project <a href=https://www.bitdegree.org/"/crypto/learn/crypto-terms/what-is-dumping/">dumping their own tokens into the market, thus crashing the price of the token. Allow me to elaborate on this.</p>\n<p>When developers create a project, they also set things such as total token supply, and initial token allocation. Meaning, they can give themselves any number of tokens that they’d like - in many cases, developers do that. Think of it as shares in a company.</p>\n<p>At first, the project is worthless, since it has just started - thus, the tokens are worthless, as well. However, as hype starts building up, and the project gets more and more recognition, the price of the <a href=https://www.bitdegree.org/"/crypto/learn/crypto-terms/what-is-token/">token <strong>increases</strong>, as well.</p>\n<p><img title=\"What is a rug pull in crypto: Developers selling their tokens.\" src=https://www.bitdegree.org/"https://assets.bitdegree.org/crypto/storage/media/what-is-a-rug-pull-2.o.jpg/" alt=\"What is a rug pull in crypto: Developers selling their tokens.\" width=\"1000\" height=\"495\" /></p>\n<p>At some point, the project owners might decide to do a rug pull - simply dump their tokens into the market, causing an immediate and huge price crash. Suddenly, there are thousands or even hundreds of thousands more tokens on the supply side of things, and no demand - naturally, the token loses price!</p>\n<p>It’s worth mentioning that some rug pulls of this kind happen gradually, instead of a sudden dump - developers could choose to offload their tokens slowly, with the hopes that no one will notice. However, in the vast majority of cases, the rug pull will happen in a matter of minutes.</p>\n<p>In this situation, the developers will run away with a newly-acquired stack of <strong>ETH</strong> <strong>or BNB</strong> coins that they’ve traded their project token for, while investors will be left “holding the bag” of now-worthless tokens. As I’ve said - a classic example of a rug pull.</p>\n<p>If you want a real-world example of what this type of a rug pull looks like, you needn’t look further than into the alleged rug pull of the Squid Game token. This event even made the headlines of mainstream news sources! Essentially, the scenario of how it went down is very simple - some people created a token based on the popular TV show, and when investors started flocking in, the team behind the project allegedly rug pulled it, and ran away with the funds.</p>\n<p><img title=\"What is a rug pull in crypto: Squid Game example.\" src=https://www.bitdegree.org/"https://assets.bitdegree.org/crypto/storage/media/how-to-avoid-rug-pulls-3.o.jpg/" alt=\"What is a rug pull in crypto: Squid Game example.\" width=\"1000\" height=\"582\" /></p>\n<p>While no law enforcement agency has “confirmed” this to be a rug pull, most of the crypto community agrees that the Squid Game token was, indeed, rug pulled.</p>\n<h2>Draining Liquidity</h2>\n<p>The second super-popular method of how rug pulls are performed is by draining the liquidity from the project. This might require some explanation.</p>\n<p>Imagine that you’ve come up with an awesome idea for a brand new <strong>cryptocurrency project</strong>. You’ve set everything up, and are ready to launch your project. However, since the token of your project is completely new, and thus, worthless, you will need to supply the project with liquidity, in order to allow other people to trade your tokens at the very beginning.</p>\n<p>So, what this would look like is something like this - you supply the market with your new tokens, in addition to some valuable crypto coins, such as <a href=https://www.bitdegree.org/"/crypto/buy-ethereum-eth/">Ethereum. This is called a liquidity pool - imagine it as a jar where you put two different types of candy into it. If you want to get a better understanding of liquidity pools, though, I urge you to go and read the section dedicated to <a href=https://www.bitdegree.org/"/crypto/learn/what-is-liquidity-pool-in-crypto/">liquidity pools</strong></a>, and then come back to this one.</p>\n<p>So, the pool allows new investors to come in, and trade their valuable tokens for your newly-created project tokens. With time, as more and more investors join in on the project, the pool will start receiving a lot more of the valuable crypto tokens, while having less and less of your project token.</p>\n<p style=\"text-align: center;\"><img title=\"What is a rug pull in crypto: Draining liquidity.\" src=https://www.bitdegree.org/"https://assets.bitdegree.org/crypto/storage/media/what-is-a-rug-pull-4.o.jpg/" alt=\"What is a rug pull in crypto: Draining liquidity.\" width=\"1000\" height=\"702\" /></p>\n<p>What a malicious developer could do here is simply take out all of the liquidity from the pool - in other words, just how they initially put in their valuable coins or tokens into the project (for example, Ethereum), they could now take them out, in the same way. Now, however, they would be taking out much more than they’ve put in, thanks to all of the <strong>new investors</strong> that have contributed their ETH to the pool.</p>\n<p>In this situation, investors are, once again, left “holding the bag” - they can’t sell their worthless tokens, since all of the liquidity (or, Ethereum) has been drained out of the pool, by the malicious developers or project owners.</p>\n<h2>Malicious Code</h2>\n<p>Now, the third type of rug pulls has to do with malicious project code. Admittedly, it’s one of the rarer types of rug pulls - this doesn’t mean it doesn’t still happen, though! Since it’s a bit rare, it might even be overlooked. That is because not that many people know that this is even possible.</p>\n<p>Developers of a project could code some malicious mechanics into their <a href=https://www.bitdegree.org/"/crypto/learn/crypto-terms/what-is-smart-contract/">smart contracts</strong></a>. For example, they could write code that prevents investors from selling their tokens - meaning, you could only BUY the token, but couldn’t SELL it.</p>\n<p><img style=\"display: block; margin-left: auto; margin-right: auto;\" title=\"What is a rug pull in crypto: Malicious code.\" src=https://www.bitdegree.org/"https://assets.bitdegree.org/crypto/storage/media/what-is-a-rug-pull-5.o.jpg/" alt=\"What is a rug pull in crypto: Malicious code.\" width=\"1000\" height=\"1009\" /></p>\n<p>This would, obviously, make the price of the token go up, <strong>pretty fast</strong>, since no one but the developer is able to sell it. If they time it right, the people behind the project could dump their share of the tokens into the market before the word goes out, and the rug pull becomes evident.</p>\n<p>Unless you know where to look at, rug pulls like these can be easy to overlook! This is why it’s important to really dig deep into the project, read all of the investor feedback, and check for any potential loopholes.</p>\n<h2>How to Spot a Potential Rug Pull?</h2>\n<p>So, speaking of loopholes, now that you know what rug pulls are, and how the traditional rug pulls are executed, we can also take a look at some signs that you could spot within a project, if you suspect it to be a future rug pull in development!</p>\n<p>The very first and most-obvious thing to look out for is <strong>token distribution</strong> - in other words, if there are any number of <a href=https://www.bitdegree.org/"https://www.bitdegree.org/crypto/best-cryptocurrency-wallet/">wallets that hold a huge number of all of the available project tokens.</p>\n<p>How can you check this? Well, there are special websites, such as Etherscan and BscScan - these are blockchain explorers that allow you to enter the smart contract address for any Ethereum or Binance Smart Chain project out there, and check the token allocation. If you see that 10 or 20 wallets hold more than 50% of all the available tokens, chances are that there’s something fishy going on, and you should stay away from the project.</p>\n<p>The second thing to look out for has to do with liquidity. Remember when I told you about the liquidity draining method of a rug pull? Well, one way how you can see whether a project has the potential to be rug pulled this way is by checking if the liquidity for that project is locked or not.</p>\n<p><strong>Locked liquidity</strong> means that there’s no chance for the developers to access it, and thus, suddenly rug pull the project. Of course, you should also check for how long that liquidity is locked - if it’s just a couple of months, well, that’s not going to change much.</p>\n<p>The third sign that a project could be a potential rug pull is actually made up of two parts - anonymous developers, and a lack of an independent audit.</p>\n<p>If the developers for a project are anonymous, that should raise some red flags - if they DO end up rug pulling their project, you won’t really have any leads on who to seek out for your damages. If, however, the developers or project owners are well-known, and their identities are public, there’s a much smaller chance that a rug pull will happen.</p>\n<p>On that same note, if a project is <strong>independently audited</strong>, this also adds to its legitimacy claims. An independent audit is when the smart contract is checked by professionals who are actively trying to find potential loopholes and malicious projects. If there’s a lack of an audit, though, or if it has been audited by some shady, non-reliable auditor, then this should also raise some red flags.</p>\n<p>Last but not least, a huge thing that you should be aware of is how the developers - or the team behind the project, in general, - interact with their investors. Do they have an official website, a Discord, and a Twitter account? How is their communication - do they talk with their investors? Does it look like they’re trying to hide something, or are there questions that keep getting dodged all the time?</p>\n<p><img style=\"display: block; margin-left: auto; margin-right: auto;\" title=\"What is a rug pull in crypto: How to spot a potential rug pull?\" src=https://www.bitdegree.org/"https://assets.bitdegree.org/crypto/storage/media/what-is-a-rug-pull-6.o.jpg/" alt=\"What is a rug pull in crypto: How to spot a potential rug pull?\" width=\"1000\" height=\"888\" /></p>\n<p>In general, you should really “get a feel” for the community and team behind a project, before you decide if it’s worth investing in or not. If there’s something not quite right, or you feel that there’s shadiness surrounding the project, it could be a rug pull, just waiting to happen.</p>\n<p>A great example of how intricate and difficult-to-spot rug pulls can be is a token called SaveTheKids. It was created and launched by a few different YouTube and social media <strong>influencers</strong>, most of who dumped their tokens into the market a few hours after the launch, thus crashing the token’s price.</p>\n<p><img title=\"What is a rug pull in crypto: Save the kids token.\" src=https://www.bitdegree.org/"https://assets.bitdegree.org/crypto/storage/media/what-is-a-rug-pull-7.o.jpg/" alt=\"What is a rug pull in crypto: Save the kids token.\" width=\"1000\" height=\"790\" /></p>\n<p>Again, this was an ALLEGED rug pull - for legalities’ sake, this is just the conclusion that the community behind the project has come to, and no financial authority has really confirmed it. Nevertheless, it just goes to show that even if the project has an awesome community and some very well-known names behind it, you can still never be 100% certain that there isn’t something fishy going on, in the background.</p>\n<p>With that, though, we've come to an end of this section. I hope that now you will be more aware of <strong>the signs</strong>, that a rug pull might take place.</p>","meta_title":"What is a Rug Pull in Crypto: How it Works & How to Spot It","meta_description":"Read about what is a rug pull in crypto, how it works, and how to spot it! Several easy-to-understand examples of rug pulls are included!","meta_keywords":"what is a rug pull in crypto, rug pull definition, what is a rug pull nft, crypto rug pull examples, how does a rug pull work, how to spot a rug pull","order":9,"language":"en","created_at":"2022-05-04T05:54:42.000000Z","updated_at":"2023-04-24T13:41:44.000000Z","modified_content":"<p>In this section, we’re going to cover what is <a href=https://www.bitdegree.org/"/crypto/learn/crypto-terms/what-is-rug-pull/">a rug pull</strong></a>, in crypto!</p>\n<p>Imagine that, one day, while browsing Reddit, you’ve stumbled upon a brand new crypto project - somebody made a post about a token that was just launched a few hours ago. It looks great, and there are multiple people commenting on how it will surely “<strong>go to the moon</strong>”!</p>\n<p>Inspired by all these comments and not wanting to miss out on a potentially great investment opportunity, you decided to go all-in, and invest your savings into the token. While you went to bed seeing your investment increasing tenfold, the next morning, you wake up to see that your new tokens are now worth but a few cents. This is often what a classic rug pull looks like.</p>\n<p>In this section, we are talking about rug pulls. I’ll explain the concept of what a rug pull is, in crypto, and give you a few examples of what classic rug pulls look like! In the end, I’ll also tell you what to look out for, when you suspect that a project might be a future rug pull.</p>\n<p>Let’s get to it!</p>\n<div class=\"container\">\n <div class=\"row justify-content-center\">\n <div class=\"col-md-10 comparison-suggestion pb-3 mb-4\">\n <div class=\"d-flex flex-row\">\n <div class=\"text-center\">\n <div class=\"img-block-yt\">\n <img src=https://www.bitdegree.org/"https://assets.bitdegree.org/crypto/assets/images/compare-crypto-exchanges.gif/"/n alt=\"What is a Rug Pull in Crypto? (Meaning + Examples)\"\n title=\"What is a Rug Pull in Crypto? (Meaning + Examples)\" class=\"border-0\">\n <p>Video Explainer</p>\n </div>\n </div>\n <div class=\"col-xs-10 col-sm-10 col-md-10 text-left py-3 yt-info\">\n <h4 class=\"mb-1\">Video Explainer: What is a Rug Pull in Crypto?</h4>\n <p class=\"py-1 mb-0 youtube-video-subtitle\">Reading is not your thing? Watch the \"What is a Rug Pull in Crypto?\" video explainer</p>\n </div>\n </div>\n <div class=\"row justify-content-center text-center\">\n <div class=\"col-12 col-md-11 px-3\">\n <div class=\"wrapper mb-0\">\n <div class=\"youtube mb-4 bg-transparent p-0 video-modal-popup\" data-toggle=\"modal\"\n data-target=\"#video-modal\" data-id=\"pgTVuCsUcKw\" data-title=\"CryptoFinallyExplained\">\n <div class=\"video-gradient-top\"></div>\n <p class=\"text-left dyk-video-title\">What is a Rug Pull in Crypto? (Meaning + Examples)</p>\n <img src=https://www.bitdegree.org/"https://i.ytimg.com/vi/pgTVuCsUcKw/hq720.jpg/"/n alt=\"What is a Rug Pull in Crypto? (Meaning + Examples)\"\n title=\"What is a Rug Pull in Crypto? (Meaning + Examples)\"\n class=\"p-0\">\n <img class=\"play-button\" data-target=\"#video-modal\"\n src=https://www.bitdegree.org/"https://assets.bitdegree.org/crypto/assets/video-button.png/"/n alt=\"What is a Rug Pull in Crypto? (Meaning + Examples)\">\n </div>\n </div>\n </div>\n </div>\n <div class=\"row justify-content-center text-center\">\n <div>\n <a href=https://www.bitdegree.org/"https://www.youtube.com/c/CryptoFinallyExplained?sub_confirmation=1\%22\n class=\"btn yt-promo mb-2\" target=\"_blank\" rel=\"nofollow noopener\">\n <div class=\"row justify-content-center align-items-center mx-0 text-center\">\n <div class=\"col-4 col-md-4\">\n <i class=\"fab fa-youtube yt-dyk-btn\"></i>\n </div>\n <div class=\"col-8 col-md-8 text-center yt-promo-text\">\n <h4 class=\"m-0 text-white\">SUBSCRIBE</h4>\n <span>ON YOUTUBE</span>\n </div>\n </div>\n </a>\n </div>\n </div>\n </div>\n </div>\n</div>\n<div class=\"modal fade\" id=\"video-modal\" tabindex=\"-1\" role=\"dialog\" aria-labelledby=\"pgTVuCsUcKw\">\n <div class=\"modal-dialog modal-dialog-centered modal-lg\" role=\"document\">\n <div class=\"modal-content\">\n <div class=\"modal-body p-0\">\n <button type=\"button\" class=\"video-modal-close close\" data-dismiss=\"modal\" aria-label=\"Close\">\n <i aria-hidden=\"true\" class=\"fas fa-times\"></i>\n </button>\n <div id=\"iframe\"></div>\n </div>\n <a class=\"text-decoration-none\"\n href=https://www.bitdegree.org/"https://www.youtube.com/c/CryptoFinallyExplained?sub_confirmation=1\%22\n rel=\"nofollow noopener\" target=\"_blank\">\n <div class=\"modal-footer p-0 d-block bg-white\">\n <div class=\"row justify-content-center m-0\">\n <div class=\"col-3 col-md-4 col-lg-2 p-0\">\n <img class=\"w-100 h-100\" src=https://www.bitdegree.org/"https://assets.bitdegree.org/crypto/assets/crypto-subscribe.jpg/" alt=\"Subscribe\">\n </div>\n <div class=\"col-9 col-md-8 col-lg-2 px-0 d-flex\">\n <div class=\"modal-subscribe w-100\">\n <p class=\"m-0 mt-1 mr-3\">SUBSCRIBE<br>\n <span class=\"m-0\">ON YOUTUBE</span>\n </p>\n </div>\n </div>\n <div class=\"col-12 col-md-12 col-lg-8 p-0 text-center d-flex justify-content-center align-items-center\">\n <div class=\"modal-subscribe-text\">\n <h4 class=\"m-0\">Understand crypto with ease</h4>\n <span>New explainer videos every week!</span>\n </div>\n </div>\n </div>\n </div>\n </a>\n </div>\n </div>\n</div>\n<h2>What is a Rug Pull?</h2>\n<p>So, what is a rug pull in the world of crypto, exactly?</p>\n<p>Well, to put it in one word, it’s theft - <strong>literal theft</strong>. However, the definition of the term is also rather simple - it’s when the developers or project owners run away with people’s investments. A typical example of a rug pull would be that which I’ve mentioned in the introductory part of this section.</p>\n<p>Say, you’ve bought $100 worth of a token called “DefinitelyNotARugPull”. It’s a brand new project, but you’ve noticed that it has a lot of hype surrounding it, already - Reddit comments, Tweets, likes and upvotes, and so on. They even have a flashy and functional website!</p>\n<p><img style=\"display: block; margin-left: auto; margin-right: auto;\" title=\"What is a Rug Pull in crypto: An example of a Rug Pull.\" src=https://www.bitdegree.org/"https://assets.bitdegree.org/crypto/storage/media/what-is-a-rug-pull-1.o.jpg/" alt=\"What is a Rug Pull in crypto: An example of a rug pull.\" width=\"1000\" height=\"289\" /></p>\n<p>All of these things can be used to lure unsuspecting investors into a trap. Once you bite the bullet and actually buy $100 worth of this new token, its price may rise for the first few hours or days, sure. This is just the period when the developers are generating hype, and trying to get as many people to buy in as possible.</p>\n<p>After those initial few days, however, your funds could be gone in <strong>a matter of minutes</strong> - in other words, you might get rug pulled. There are actually a few ways of how this would look like, so let’s explore the most popular methods of rug pulling, shall we?</p>\n<h2>Developers Selling their Tokens</h2>\n<p>Undoubtedly the most common method of how rug pulls are executed is by developers or companies behind the project <a href=https://www.bitdegree.org/"/crypto/learn/crypto-terms/what-is-dumping/">dumping their own tokens into the market, thus crashing the price of the token. Allow me to elaborate on this.</p>\n<p>When developers create a project, they also set things such as total token supply, and initial token allocation. Meaning, they can give themselves any number of tokens that they’d like - in many cases, developers do that. Think of it as shares in a company.</p>\n<p>At first, the project is worthless, since it has just started - thus, the tokens are worthless, as well. However, as hype starts building up, and the project gets more and more recognition, the price of the <a href=https://www.bitdegree.org/"/crypto/learn/crypto-terms/what-is-token/">token <strong>increases</strong>, as well.</p>\n<p><img title=\"What is a rug pull in crypto: Developers selling their tokens.\" src=https://www.bitdegree.org/"https://assets.bitdegree.org/crypto/storage/media/what-is-a-rug-pull-2.o.jpg/" alt=\"What is a rug pull in crypto: Developers selling their tokens.\" width=\"1000\" height=\"495\" /></p>\n<p>At some point, the project owners might decide to do a rug pull - simply dump their tokens into the market, causing an immediate and huge price crash. Suddenly, there are thousands or even hundreds of thousands more tokens on the supply side of things, and no demand - naturally, the token loses price!</p>\n<p>It’s worth mentioning that some rug pulls of this kind happen gradually, instead of a sudden dump - developers could choose to offload their tokens slowly, with the hopes that no one will notice. However, in the vast majority of cases, the rug pull will happen in a matter of minutes.</p>\n<p>In this situation, the developers will run away with a newly-acquired stack of <strong>ETH</strong> <strong>or BNB</strong> coins that they’ve traded their project token for, while investors will be left “holding the bag” of now-worthless tokens. As I’ve said - a classic example of a rug pull.</p>\n<p>If you want a real-world example of what this type of a rug pull looks like, you needn’t look further than into the alleged rug pull of the Squid Game token. This event even made the headlines of mainstream news sources! Essentially, the scenario of how it went down is very simple - some people created a token based on the popular TV show, and when investors started flocking in, the team behind the project allegedly rug pulled it, and ran away with the funds.</p>\n<p><img title=\"What is a rug pull in crypto: Squid Game example.\" src=https://www.bitdegree.org/"https://assets.bitdegree.org/crypto/storage/media/how-to-avoid-rug-pulls-3.o.jpg/" alt=\"What is a rug pull in crypto: Squid Game example.\" width=\"1000\" height=\"582\" /></p>\n<p>While no law enforcement agency has “confirmed” this to be a rug pull, most of the crypto community agrees that the Squid Game token was, indeed, rug pulled.</p>\n<h2>Draining Liquidity</h2>\n<p>The second super-popular method of how rug pulls are performed is by draining the liquidity from the project. This might require some explanation.</p>\n<p>Imagine that you’ve come up with an awesome idea for a brand new <strong>cryptocurrency project</strong>. You’ve set everything up, and are ready to launch your project. However, since the token of your project is completely new, and thus, worthless, you will need to supply the project with liquidity, in order to allow other people to trade your tokens at the very beginning.</p>\n<p>So, what this would look like is something like this - you supply the market with your new tokens, in addition to some valuable crypto coins, such as <a href=https://www.bitdegree.org/"/crypto/buy-ethereum-eth/">Ethereum. This is called a liquidity pool - imagine it as a jar where you put two different types of candy into it. If you want to get a better understanding of liquidity pools, though, I urge you to go and read the section dedicated to <a href=https://www.bitdegree.org/"/crypto/learn/what-is-liquidity-pool-in-crypto/">liquidity pools</strong></a>, and then come back to this one.</p>\n<p>So, the pool allows new investors to come in, and trade their valuable tokens for your newly-created project tokens. With time, as more and more investors join in on the project, the pool will start receiving a lot more of the valuable crypto tokens, while having less and less of your project token.</p>\n<p style=\"text-align: center;\"><img title=\"What is a rug pull in crypto: Draining liquidity.\" src=https://www.bitdegree.org/"https://assets.bitdegree.org/crypto/storage/media/what-is-a-rug-pull-4.o.jpg/" alt=\"What is a rug pull in crypto: Draining liquidity.\" width=\"1000\" height=\"702\" /></p>\n<p>What a malicious developer could do here is simply take out all of the liquidity from the pool - in other words, just how they initially put in their valuable coins or tokens into the project (for example, Ethereum), they could now take them out, in the same way. Now, however, they would be taking out much more than they’ve put in, thanks to all of the <strong>new investors</strong> that have contributed their ETH to the pool.</p>\n<p>In this situation, investors are, once again, left “holding the bag” - they can’t sell their worthless tokens, since all of the liquidity (or, Ethereum) has been drained out of the pool, by the malicious developers or project owners.</p>\n<h2>Malicious Code</h2>\n<p>Now, the third type of rug pulls has to do with malicious project code. Admittedly, it’s one of the rarer types of rug pulls - this doesn’t mean it doesn’t still happen, though! Since it’s a bit rare, it might even be overlooked. That is because not that many people know that this is even possible.</p>\n<p>Developers of a project could code some malicious mechanics into their <a href=https://www.bitdegree.org/"/crypto/learn/crypto-terms/what-is-smart-contract/">smart contracts</strong></a>. For example, they could write code that prevents investors from selling their tokens - meaning, you could only BUY the token, but couldn’t SELL it.</p>\n<p><img style=\"display: block; margin-left: auto; margin-right: auto;\" title=\"What is a rug pull in crypto: Malicious code.\" src=https://www.bitdegree.org/"https://assets.bitdegree.org/crypto/storage/media/what-is-a-rug-pull-5.o.jpg/" alt=\"What is a rug pull in crypto: Malicious code.\" width=\"1000\" height=\"1009\" /></p>\n<p>This would, obviously, make the price of the token go up, <strong>pretty fast</strong>, since no one but the developer is able to sell it. If they time it right, the people behind the project could dump their share of the tokens into the market before the word goes out, and the rug pull becomes evident.</p>\n<p>Unless you know where to look at, rug pulls like these can be easy to overlook! This is why it’s important to really dig deep into the project, read all of the investor feedback, and check for any potential loopholes.</p>\n<h2>How to Spot a Potential Rug Pull?</h2>\n<p>So, speaking of loopholes, now that you know what rug pulls are, and how the traditional rug pulls are executed, we can also take a look at some signs that you could spot within a project, if you suspect it to be a future rug pull in development!</p>\n<p>The very first and most-obvious thing to look out for is <strong>token distribution</strong> - in other words, if there are any number of <a href=https://www.bitdegree.org/"https://www.bitdegree.org/crypto/best-cryptocurrency-wallet/">wallets that hold a huge number of all of the available project tokens.</p>\n<p>How can you check this? Well, there are special websites, such as Etherscan and BscScan - these are blockchain explorers that allow you to enter the smart contract address for any Ethereum or Binance Smart Chain project out there, and check the token allocation. If you see that 10 or 20 wallets hold more than 50% of all the available tokens, chances are that there’s something fishy going on, and you should stay away from the project.</p>\n<p>The second thing to look out for has to do with liquidity. Remember when I told you about the liquidity draining method of a rug pull? Well, one way how you can see whether a project has the potential to be rug pulled this way is by checking if the liquidity for that project is locked or not.</p>\n<p><strong>Locked liquidity</strong> means that there’s no chance for the developers to access it, and thus, suddenly rug pull the project. Of course, you should also check for how long that liquidity is locked - if it’s just a couple of months, well, that’s not going to change much.</p>\n<p>The third sign that a project could be a potential rug pull is actually made up of two parts - anonymous developers, and a lack of an independent audit.</p>\n<p>If the developers for a project are anonymous, that should raise some red flags - if they DO end up rug pulling their project, you won’t really have any leads on who to seek out for your damages. If, however, the developers or project owners are well-known, and their identities are public, there’s a much smaller chance that a rug pull will happen.</p>\n<p>On that same note, if a project is <strong>independently audited</strong>, this also adds to its legitimacy claims. An independent audit is when the smart contract is checked by professionals who are actively trying to find potential loopholes and malicious projects. If there’s a lack of an audit, though, or if it has been audited by some shady, non-reliable auditor, then this should also raise some red flags.</p>\n<p>Last but not least, a huge thing that you should be aware of is how the developers - or the team behind the project, in general, - interact with their investors. Do they have an official website, a Discord, and a Twitter account? How is their communication - do they talk with their investors? Does it look like they’re trying to hide something, or are there questions that keep getting dodged all the time?</p>\n<p><img style=\"display: block; margin-left: auto; margin-right: auto;\" title=\"What is a rug pull in crypto: How to spot a potential rug pull?\" src=https://www.bitdegree.org/"https://assets.bitdegree.org/crypto/storage/media/what-is-a-rug-pull-6.o.jpg/" alt=\"What is a rug pull in crypto: How to spot a potential rug pull?\" width=\"1000\" height=\"888\" /></p>\n<p>In general, you should really “get a feel” for the community and team behind a project, before you decide if it’s worth investing in or not. If there’s something not quite right, or you feel that there’s shadiness surrounding the project, it could be a rug pull, just waiting to happen.</p>\n<p>A great example of how intricate and difficult-to-spot rug pulls can be is a token called SaveTheKids. It was created and launched by a few different YouTube and social media <strong>influencers</strong>, most of who dumped their tokens into the market a few hours after the launch, thus crashing the token’s price.</p>\n<p><img title=\"What is a rug pull in crypto: Save the kids token.\" src=https://www.bitdegree.org/"https://assets.bitdegree.org/crypto/storage/media/what-is-a-rug-pull-7.o.jpg/" alt=\"What is a rug pull in crypto: Save the kids token.\" width=\"1000\" height=\"790\" /></p>\n<p>Again, this was an ALLEGED rug pull - for legalities’ sake, this is just the conclusion that the community behind the project has come to, and no financial authority has really confirmed it. Nevertheless, it just goes to show that even if the project has an awesome community and some very well-known names behind it, you can still never be 100% certain that there isn’t something fishy going on, in the background.</p>\n<p>With that, though, we've come to an end of this section. I hope that now you will be more aware of <strong>the signs</strong>, that a rug pull might take place.</p>","preview_url":"https://www.bitdegree.org/crypto/learn/what-is-a-rug-pull-in-crypto","youtube_video":{"id":18,"channel_id":1,"sort":44,"video_title":"What is a Rug Pull in Crypto? (Meaning + Examples)","description":"What is a rug pull in crypto?\n\nCrypto rug pulls are a type of scam that project developers can perform on their investors. Specifically, a rug pull happens when the developers or owners of a project run away with their investors' funds, and leave those same investors “holding the bag” of now-worthless project tokens.\n\nThere are multiple ways of how a rug pull can be performed. In this video, I will tell you about the most popular types of rug pulls, and also, how to spot a potential rug pull, in order to avoid falling for scams.\n\nAre you a victim of a rug pull in crypto? Maybe you’ve narrowly avoided getting rugged? Share your experiences in the comments below!\n\nVideo Time Table:\n\n0:00 Introduction to What is a Rug Pull in Crypto\n1:01 What is a Crypto Rug Pull?\n2:01 Rug Pull Examples: Developers Dumping Their Tokens\n3:50 Rug Pull Examples: Draining Liquidity\n5:20 Rug Pull Examples: Malicious Code\n6:23 How to Spot a Rug Pull?\n9:14 Wrap-up: What is a Rug Pull in Crypto?\n\nGet Quick Crypto Tips on Twitter - Follow:\nhttps://twitter.com/crypto_xplained\n\n#WhatisaRugPullinCrypto #RugPullDefinition #WhatisaRugPullNFT #CryptoRugPullExamples #HowDoesaRugPullWork #HowtoSpotaRugPull","video_id":"pgTVuCsUcKw","duration":568,"view_count":845,"thumbnail_url":"https://i.ytimg.com/vi/pgTVuCsUcKw/hq720.jpg","thumbnail_width":1280,"thumbnail_height":720,"published_at":"2022-03-25 14:50:08","created_at":"2022-03-25T23:00:01.000000Z","updated_at":"2023-05-21T23:00:04.000000Z","channel":{"id":1,"title":"CryptoFinallyExplained","channel_id":"UCOryUY0yxC08eJtK23mNgiA","main_playlist_id":"UUOryUY0yxC08eJtK23mNgiA"}}},"prevSection":{"id":476,"featured_image_id":11394,"original_id":null,"youtube_video_id":153,"author_id":42,"translator_id":null,"chapter_id":7,"title":"What is FUD: How to Use It to Your Advantage While Investing in Crypto?","slug":"what-is-fud","definition":"Did you know that FUD is an acronym for \"Fear, Uncertainty, and Doubt\"?","status":"published","content":"<p><span style=\"font-family: -apple-system, BlinkMacSystemFont, 'Segoe UI', Roboto, Oxygen, Ubuntu, Cantarell, 'Open Sans', 'Helvetica Neue', sans-serif;\">In this section, we’re going to talk about <strong>what is FUD in investing, and how to profit from it</strong>!</span></p>\n<p>Ironically, the word <em>“FUD”</em> causes FUD for those who don’t know what this abbreviation stands for, which is “<strong>Fear, Uncertainty and Doubt</strong>”. But, there’s no need to fear FUD. You can even profit from it, and there are many who do exactly that.</p>\n<p>Emotions play a critical role in everything. Therefore, it’s not a surprise that markets, especially ones that are as versatile as crypto, are directly affected by the predominant sentiments. But, once you become aware of how it influences people’s financial decisions, you learn how to read between the lines, and how to avoid being blinded by irrational fear.</p>\n<p>In this section, <strong>I’m going to talk about what is FUD in crypto investing</strong> - specifically, how it affects people’s investment strategies and the cryptocurrency market, and how not to give into it. I’ll share particular examples about how FUD had led people into financial losses, and the exact opposite - how smart investors sensed the market sentiment, and ended up counting financial gains while everyone else thought that the ship was sinking.</p>\n<p><em>Fear no more, and let’s dive into it!</em></p>\n<h2>What is FUD?</h2>\n<p>As I’ve told you in the introductory part, <strong>FUD stands for Fear, Uncertainty, and Doubt</strong>. These three unpleasant emotions play a huge part in crypto, as well as the broader financial markets, in general. They affect how people act, what they buy, what they sell, where and how much they invest. When these emotions prevail, it affects the entire industry, and numbers on charts turn red.</p>\n<p><img style=\"display: block; margin-left: auto; margin-right: auto;\" title=\"What is FUD: Fear, Uncertainty, and Doubt.\" src=https://www.bitdegree.org/"https://assets.bitdegree.org/crypto/storage/optimized/what-is-fud-01.jpg/" alt=\"What is FUD: Fear, Uncertainty, and Doubt.\" width=\"1000\" height=\"557\" /></p>\n<p>These sentiments arise and grip the market for various reasons, and on different occasions. <strong>Sometimes, FUD spreads uncontrollably</strong> for objective reasons, such as huge companies going bankrupt, or political bodies implementing policies that may potentially be detrimental to particular investments.</p>\n<p>A great example of this could be found in the year 2021. It was the time when the word began spreading that the <strong>Chinese government was about to implement a total ban on crypto</strong>. China was very active in terms of <a href=https://www.bitdegree.org/"https://www.bitdegree.org/crypto/tutorials/how-to-mine-cryptocurrency/">crypto mining</a> operations; therefore people feared that a sudden shock like this could give a massive blow to the industry. Which, of course, would affect crypto prices, and cause financial losses for most traders.</p>\n<p>Naturally, this news caused a wave of FUD in the crypto world, as investors and traders became concerned about saving their money. As time later revealed, the fears were justified, as China really did implement the crypto ban, and the effects on the market were felt by everyone.</p>\n<p>This was an example of <strong>FUD caused by unsettling rumors</strong> that eventually turned out to be true. But it’s not always the case. In reality, usually, it’s quite the opposite.</p>\n<p>Sometimes false rumors begin making rounds on social media, and if no respected figure steps in to deny them in time, the waves of FUD can cause real damage. And in cases like this, the damage comes from the fact that unverified information affected traders’ emotions, and they all gave in to fear, uncertainty and doubt.</p>\n<p><img style=\"display: block; margin-left: auto; margin-right: auto;\" title=\"What is FUD: This rumor is false!\" src=https://www.bitdegree.org/"https://assets.bitdegree.org/crypto/storage/optimized/what-is-fud-02.jpg/" alt=\"What is FUD: This rumor is false!\" width=\"1000\" height=\"589\" /></p>\n<p>Here’s an example. Several months before the rumors about China’s ban, in May 2021, the word began spreading that <strong>the US Treasury was planning to strictly intensify crypto regulation</strong>.</p>\n<p>FUD quickly spread, and led to a significant drop in the prices of such cryptocurrencies as <a href=https://www.bitdegree.org/"/crypto/buy-bitcoin-btc/">Bitcoin and <a href=https://www.bitdegree.org/"/crypto/buy-ethereum-eth/">Ethereum.  As the prices began falling, people began panicking. In order to save their investments, many traders rushed to sell their crypto assets, which, in turn, only further accelerated the spread of the unpleasant sentiment and the decline in crypto prices. Even though all of this was caused by a false rumor, it created a vicious circle, and a snowball effect.</p>\n<p>So, that’s an example of how false news and fake information can cause FUD. As you can already tell, <strong>when it comes to FUD, a savvy investor must always remain sharp and vigilant</strong> in order not to fall prey to rumors taken out of thin air.</p>\n<p>There are a lot of similarities between how rumors function in the crypto market, and in real life. Sometimes they turn out to be true, sometimes, they get debunked as pure nonsense. But, there’s one more element that needs to be considered when talking about what is FUD in crypto investing. Just like gossip, <strong>FUD is often created by people who have particular goals in their minds</strong>. <em>And these goals can get pretty sinister.</em></p>\n<p>Market manipulators or competitors of a particular cryptocurrency, or a crypto-related company, love FUD. If the rumor doesn’t get debunked fast enough, the coin, or a company that's surrounded by artificially-caused clouds of FUD can get damaged.</p>\n<p><img style=\"display: block; margin-left: auto; margin-right: auto;\" title=\"What is FUD: Market manipulators.\" src=https://www.bitdegree.org/"https://assets.bitdegree.org/crypto/storage/optimized/what-is-fud-03.jpg/" alt=\"What is FUD: Market manipulators.\" width=\"1000\" height=\"600\" /></p>\n<p>As mentioned before, <strong>FUD causes panic-selling</strong>, as traders try not to lose their investments. So, if the FUD is targeted at a particular coin, it can lead to a significant drop in its price. If the FUD doesn’t get dispersed quick enough, it can lead to a loss of confidence in the coin, the company, or even the entire industry, as people begin to literally feel fearful, uncertain and doubtful about continuing to invest their money into it.</p>\n<p>But then again, where there are losers, there are also winners. Market manipulators understand this very well, and every time they notice an irrational behavior becoming more and more prevalent in the market, they begin sensing new opportunities.</p>\n<p><strong>If the rumor is false, it will eventually get debunked, the FUD cycle will come to an end</strong>. But until then, the artificially created FUD does its job for them.</p>\n<p>If people began abandoning a certain coin, it would lead to its decrease in value. This opens up opportunities for market manipulators to rush in, buy this coin at a lower value, and then, once it gets back on its feet, sell it at a higher price than they bought it for.</p>\n<p><img style=\"display: block; margin-left: auto; margin-right: auto;\" title=\"What is FUD: Profit.\" src=https://www.bitdegree.org/"https://assets.bitdegree.org/crypto/storage/optimized/what-is-fud-04.jpg/" alt=\"What is FUD: Profit.\" width=\"1000\" height=\"495\" /></p>\n<p>Here’s a more prominent example of how one man got accused of market manipulation.  In May 2021, <strong>Elon Musk tweeted that Tesla would no longer accept Bitcoin as payment</strong> <strong>for its products</strong>. Of course, this caused a lot of panic among investors, which resulted in <a href=https://www.bitdegree.org/"/cryptocurrency-prices/bitcoin-btc-price/">the price of Bitcoin</a> falling by over 10% in less than a day.</p>\n<p>For doing so, he got accused of market manipulation. Of course, he knew that a tweet like this would result in Bitcoin’s price taking a hit. And you can be sure that there were traders who saw this tweet as an opportunity to buy Bitcoin with a discount, as they were sure that many people would begin panic-selling their crypto holdings.</p>\n<h2>How to See Through FUD?</h2>\n<p>Up until this point, I’ve explained that <strong>FUD may be caused by</strong>:</p>\n<ul class=\"pros-check\">\n<li>Information that eventually turns out to be true;</li>\n<li>Rumors that are not true;</li>\n<li>Rumors that are purposefully spread in order to cause panic and chaos in the market, so that market manipulators could profit from everyone’s losses.</li>\n</ul>\n<p>It’s obvious that this market is very much affected by emotions, especially negative ones. One of the main reasons for that is the fact that <strong>social media plays a very important role in the crypto industry</strong>.</p>\n<p>As new coins, technologies, updates, and opinions are minted on a daily basis, people need to stay in touch with all the latest developments within the industry, in order not to miss out or sleep on new investment opportunities.</p>\n<p>But, as always, it’s a double-edged sword. <strong>Overly-intense reliance on social media gets weaponized by those who profit from FUD</strong>. Social media enables rumors and negative information to spread quickly. Therefore, in order to stay sane and safe in the crypto sphere, it is of utmost importance to always remain critical, and avoid blindly jumping on hype, fear, or other emotion-based bandwagons.</p>\n<p>Thankfully, there are helpful tools that can help traders check the emotional climate in the market. The most famous one is called the “<strong><a href=https://www.bitdegree.org/"https://www.bitdegree.org/crypto/learn/crypto-terms/what-is-fear-and-greed-index/">Crypto Fear & Greed Index</a></strong>.”</p>\n<p><img style=\"display: block; margin-left: auto; margin-right: auto;\" title=\"What is FUD: Crypto Fear & Greed Index.\" src=https://www.bitdegree.org/"https://assets.bitdegree.org/crypto/storage/optimized/what-is-fud-05.jpg/" alt=\"What is FUD: Crypto Fear & Greed Index.\" width=\"1000\" height=\"622\" /></p>\n<p>By analyzing and measuring the prevailing emotions in the market, this index expresses how does the market feel at a given day on a scale from 0 to 100.</p>\n<p><strong>0 represents “Extreme fear”, while the highest number -</strong> <strong>100 - represents “Extreme greed.”</strong></p>\n<p>Logically, when FUD is all over the place, the index turns red, and the number will get lower. So, when someone begins panicking a bit too much, they can take a look at this index, and get a reality check about how severe the situation truly is. <strong>The index serves a simple purpose, and its to help people deal with their emotions and not to overreact</strong>. </p>\n<p>If you want to take a look at how does the market feel like today, you can see it at <a href=https://www.bitdegree.org/"https://www.bitdegree.org/cryptocurrency-prices/fear-and-greed-index/">Bitdegree.org, where you’ll find a daily-updated crypto fear & greed index.</p>\n<p>Nevertheless, life would be too easy if a simple index could help people avoid losses, or lead directly to gains. Sometimes, colossal changes happen super fast, and relying simply on indexes like this one could be very risky to your financial well-being.</p>\n<p>There’s something else that experienced traders would recommend to anyone who’s worried about being affected by FUD too much. It’s called <strong>diversifying your portfolio</strong>. It’s a simple investment strategy that improves your resilience when the FUD clouds begin rising.</p>\n<p><img style=\"display: block; margin-left: auto; margin-right: auto;\" title=\"What is FUD: Diversifying your portfolio.\" src=https://www.bitdegree.org/"https://assets.bitdegree.org/crypto/storage/optimized/what-is-fud-06.jpg/" alt=\"What is FUD: Diversifying your portfolio.\" width=\"1000\" height=\"610\" /></p>\n<p>If the market sentiment turns negative, and it affects a particular coin, traders better hope that this wasn’t the coin that they put all their savings into. It’s a crypto version of the old, wise saying that tells us <em>“not to put all the eggs into  a single basket.” </em>If one coin gets affected by FUD, other coins may be able to avoid it. <strong>Having a diversified portfolio is the best way of ensuring that a single rumor won’t take down someone’s entire financial well-being</strong>.</p>\n<p>And finally, anyone who enters crypto has to realize that many projects, especially the real, promising ones, are here for the long term. After conducting their own, personal due diligence procedures, traders must evaluate that truly potential projects will survive FUD caused by false, or easily-deniable rumors.</p>\n<p>In cases like this, once again, <strong>FUD creates new investment opportunities</strong>. When negative news causes a particular crypto coin’s price to drop, this may turn out to be a great opportunity to <em>“buy the dip”.</em> This expression translates to buying the coin at a lower price, and potentially profiting from it when the asset makes a comeback.</p>\n<p><img style=\"display: block; margin-left: auto; margin-right: auto;\" title=\"What is FUD: Trader.\" src=https://www.bitdegree.org/"https://assets.bitdegree.org/crypto/storage/optimized/what-is-fud-07.jpg/" alt=\"What is FUD: Trader.\" width=\"1000\" height=\"554\" /></p>\n<p>And in addition to that, <strong>many FUD occurrences could be defined as short-lived</strong>. The crypto space, be it the market itself, or the crypto social media bubbles, are hyper volatile. New discussions, accusations, ideas, and conflicts occur every minute. New rumors are being created every day, and most of them get forgotten very quickly.</p>\n<p>Therefore, <strong>calm and patient traders recognize attempts at causing FUD</strong>, and don’t let themselves be bothered by these efforts at catching your attention.</p>\n<h2>Wrapping Up</h2>\n<p>In this section, I’ve covered <strong>what is FUD in investing, from a crypto perspective, in what forms it appears, and how it can affect the crypto market</strong>. Quite naturally, recognizing FUD and being able to not let it get into your head is a must for every trader who wishes to see success in their trading ventures.</p>\n<p>Understanding what causes FUD, and that it can be an artificially created chaos that market manipulators could take advantage of, provides traders with a new perspective, and a new skill of being more suspicious & less susceptible to emotions and irrational behavior. And that’s definitely something that a trader should seek to obtain.</p>\n<p>I hope that from now on, you’ll recognize FUD, and the fear of asking the question <em>“what is FUD?”</em> won’t bother you anymore.</p>","meta_title":"What is FUD and How Does It Affect the Crypto Market?","meta_description":"What is FUD? Well, the acronym stands for \"Fear, Uncertainty, and Doubt.\" Read this to find out how to benefit from FUD in crypto investing.","meta_keywords":"what is fud, what is a fud cycle, what is fud in investing","order":7,"language":"en","created_at":"2023-04-20T11:14:50.000000Z","updated_at":"2023-05-22T05:34:12.000000Z","modified_content":"<p><span style=\"font-family: -apple-system, BlinkMacSystemFont, 'Segoe UI', Roboto, Oxygen, Ubuntu, Cantarell, 'Open Sans', 'Helvetica Neue', sans-serif;\">In this section, we’re going to talk about <strong>what is FUD in investing, and how to profit from it</strong>!</span></p>\n<p>Ironically, the word <em>“FUD”</em> causes FUD for those who don’t know what this abbreviation stands for, which is “<strong>Fear, Uncertainty and Doubt</strong>”. But, there’s no need to fear FUD. You can even profit from it, and there are many who do exactly that.</p>\n<p>Emotions play a critical role in everything. Therefore, it’s not a surprise that markets, especially ones that are as versatile as crypto, are directly affected by the predominant sentiments. But, once you become aware of how it influences people’s financial decisions, you learn how to read between the lines, and how to avoid being blinded by irrational fear.</p>\n<p>In this section, <strong>I’m going to talk about what is FUD in crypto investing</strong> - specifically, how it affects people’s investment strategies and the cryptocurrency market, and how not to give into it. I’ll share particular examples about how FUD had led people into financial losses, and the exact opposite - how smart investors sensed the market sentiment, and ended up counting financial gains while everyone else thought that the ship was sinking.</p>\n<p><em>Fear no more, and let’s dive into it!</em></p>\n<div class=\"container\">\n <div class=\"row justify-content-center\">\n <div class=\"col-md-10 comparison-suggestion pb-3 mb-4\">\n <div class=\"d-flex flex-row\">\n <div class=\"text-center\">\n <div class=\"img-block-yt\">\n <img src=https://www.bitdegree.org/"https://assets.bitdegree.org/crypto/assets/images/compare-crypto-exchanges.gif/"/n alt=\"What is FUD in Crypto? (Fear, Uncertainty & Doubt Explained)\"\n title=\"What is FUD in Crypto? (Fear, Uncertainty & Doubt Explained)\" class=\"border-0\">\n <p>Video Explainer</p>\n </div>\n </div>\n <div class=\"col-xs-10 col-sm-10 col-md-10 text-left py-3 yt-info\">\n <h4 class=\"mb-1\">Video Explainer: What is FUD: How to Use It to Your Advantage While Investing in Crypto?</h4>\n <p class=\"py-1 mb-0 youtube-video-subtitle\">Reading is not your thing? Watch the \"What is FUD: How to Use It to Your Advantage While Investing in Crypto?\" video explainer</p>\n </div>\n </div>\n <div class=\"row justify-content-center text-center\">\n <div class=\"col-12 col-md-11 px-3\">\n <div class=\"wrapper mb-0\">\n <div class=\"youtube mb-4 bg-transparent p-0 video-modal-popup\" data-toggle=\"modal\"\n data-target=\"#video-modal\" data-id=\"_9iJ4tlM3LU\" data-title=\"CryptoFinallyExplained\">\n <div class=\"video-gradient-top\"></div>\n <p class=\"text-left dyk-video-title\">What is FUD in Crypto? (Fear, Uncertainty & Doubt Explained)</p>\n <img src=https://www.bitdegree.org/"https://i.ytimg.com/vi/_9iJ4tlM3LU/hq720.jpg/"/n alt=\"What is FUD in Crypto? (Fear, Uncertainty & Doubt Explained)\"\n title=\"What is FUD in Crypto? (Fear, Uncertainty & Doubt Explained)\"\n class=\"p-0\">\n <img class=\"play-button\" data-target=\"#video-modal\"\n src=https://www.bitdegree.org/"https://assets.bitdegree.org/crypto/assets/video-button.png/"/n alt=\"What is FUD in Crypto? (Fear, Uncertainty & Doubt Explained)\">\n </div>\n </div>\n </div>\n </div>\n <div class=\"row justify-content-center text-center\">\n <div>\n <a href=https://www.bitdegree.org/"https://www.youtube.com/c/CryptoFinallyExplained?sub_confirmation=1\%22\n class=\"btn yt-promo mb-2\" target=\"_blank\" rel=\"nofollow noopener\">\n <div class=\"row justify-content-center align-items-center mx-0 text-center\">\n <div class=\"col-4 col-md-4\">\n <i class=\"fab fa-youtube yt-dyk-btn\"></i>\n </div>\n <div class=\"col-8 col-md-8 text-center yt-promo-text\">\n <h4 class=\"m-0 text-white\">SUBSCRIBE</h4>\n <span>ON YOUTUBE</span>\n </div>\n </div>\n </a>\n </div>\n </div>\n </div>\n </div>\n</div>\n<div class=\"modal fade\" id=\"video-modal\" tabindex=\"-1\" role=\"dialog\" aria-labelledby=\"_9iJ4tlM3LU\">\n <div class=\"modal-dialog modal-dialog-centered modal-lg\" role=\"document\">\n <div class=\"modal-content\">\n <div class=\"modal-body p-0\">\n <button type=\"button\" class=\"video-modal-close close\" data-dismiss=\"modal\" aria-label=\"Close\">\n <i aria-hidden=\"true\" class=\"fas fa-times\"></i>\n </button>\n <div id=\"iframe\"></div>\n </div>\n <a class=\"text-decoration-none\"\n href=https://www.bitdegree.org/"https://www.youtube.com/c/CryptoFinallyExplained?sub_confirmation=1\%22\n rel=\"nofollow noopener\" target=\"_blank\">\n <div class=\"modal-footer p-0 d-block bg-white\">\n <div class=\"row justify-content-center m-0\">\n <div class=\"col-3 col-md-4 col-lg-2 p-0\">\n <img class=\"w-100 h-100\" src=https://www.bitdegree.org/"https://assets.bitdegree.org/crypto/assets/crypto-subscribe.jpg/" alt=\"Subscribe\">\n </div>\n <div class=\"col-9 col-md-8 col-lg-2 px-0 d-flex\">\n <div class=\"modal-subscribe w-100\">\n <p class=\"m-0 mt-1 mr-3\">SUBSCRIBE<br>\n <span class=\"m-0\">ON YOUTUBE</span>\n </p>\n </div>\n </div>\n <div class=\"col-12 col-md-12 col-lg-8 p-0 text-center d-flex justify-content-center align-items-center\">\n <div class=\"modal-subscribe-text\">\n <h4 class=\"m-0\">Understand crypto with ease</h4>\n <span>New explainer videos every week!</span>\n </div>\n </div>\n </div>\n </div>\n </a>\n </div>\n </div>\n</div>\n<h2>What is FUD?</h2>\n<p>As I’ve told you in the introductory part, <strong>FUD stands for Fear, Uncertainty, and Doubt</strong>. These three unpleasant emotions play a huge part in crypto, as well as the broader financial markets, in general. They affect how people act, what they buy, what they sell, where and how much they invest. When these emotions prevail, it affects the entire industry, and numbers on charts turn red.</p>\n<p><img style=\"display: block; margin-left: auto; margin-right: auto;\" title=\"What is FUD: Fear, Uncertainty, and Doubt.\" src=https://www.bitdegree.org/"https://assets.bitdegree.org/crypto/storage/optimized/what-is-fud-01.jpg/" alt=\"What is FUD: Fear, Uncertainty, and Doubt.\" width=\"1000\" height=\"557\" /></p>\n<p>These sentiments arise and grip the market for various reasons, and on different occasions. <strong>Sometimes, FUD spreads uncontrollably</strong> for objective reasons, such as huge companies going bankrupt, or political bodies implementing policies that may potentially be detrimental to particular investments.</p>\n<p>A great example of this could be found in the year 2021. It was the time when the word began spreading that the <strong>Chinese government was about to implement a total ban on crypto</strong>. China was very active in terms of <a href=https://www.bitdegree.org/"https://www.bitdegree.org/crypto/tutorials/how-to-mine-cryptocurrency/">crypto mining</a> operations; therefore people feared that a sudden shock like this could give a massive blow to the industry. Which, of course, would affect crypto prices, and cause financial losses for most traders.</p>\n<p>Naturally, this news caused a wave of FUD in the crypto world, as investors and traders became concerned about saving their money. As time later revealed, the fears were justified, as China really did implement the crypto ban, and the effects on the market were felt by everyone.</p>\n<p>This was an example of <strong>FUD caused by unsettling rumors</strong> that eventually turned out to be true. But it’s not always the case. In reality, usually, it’s quite the opposite.</p>\n<p>Sometimes false rumors begin making rounds on social media, and if no respected figure steps in to deny them in time, the waves of FUD can cause real damage. And in cases like this, the damage comes from the fact that unverified information affected traders’ emotions, and they all gave in to fear, uncertainty and doubt.</p>\n<p><img style=\"display: block; margin-left: auto; margin-right: auto;\" title=\"What is FUD: This rumor is false!\" src=https://www.bitdegree.org/"https://assets.bitdegree.org/crypto/storage/optimized/what-is-fud-02.jpg/" alt=\"What is FUD: This rumor is false!\" width=\"1000\" height=\"589\" /></p>\n<p>Here’s an example. Several months before the rumors about China’s ban, in May 2021, the word began spreading that <strong>the US Treasury was planning to strictly intensify crypto regulation</strong>.</p>\n<p>FUD quickly spread, and led to a significant drop in the prices of such cryptocurrencies as <a href=https://www.bitdegree.org/"/crypto/buy-bitcoin-btc/">Bitcoin and <a href=https://www.bitdegree.org/"/crypto/buy-ethereum-eth/">Ethereum.  As the prices began falling, people began panicking. In order to save their investments, many traders rushed to sell their crypto assets, which, in turn, only further accelerated the spread of the unpleasant sentiment and the decline in crypto prices. Even though all of this was caused by a false rumor, it created a vicious circle, and a snowball effect.</p>\n<p>So, that’s an example of how false news and fake information can cause FUD. As you can already tell, <strong>when it comes to FUD, a savvy investor must always remain sharp and vigilant</strong> in order not to fall prey to rumors taken out of thin air.</p>\n<p>There are a lot of similarities between how rumors function in the crypto market, and in real life. Sometimes they turn out to be true, sometimes, they get debunked as pure nonsense. But, there’s one more element that needs to be considered when talking about what is FUD in crypto investing. Just like gossip, <strong>FUD is often created by people who have particular goals in their minds</strong>. <em>And these goals can get pretty sinister.</em></p>\n<p>Market manipulators or competitors of a particular cryptocurrency, or a crypto-related company, love FUD. If the rumor doesn’t get debunked fast enough, the coin, or a company that's surrounded by artificially-caused clouds of FUD can get damaged.</p>\n<p><img style=\"display: block; margin-left: auto; margin-right: auto;\" title=\"What is FUD: Market manipulators.\" src=https://www.bitdegree.org/"https://assets.bitdegree.org/crypto/storage/optimized/what-is-fud-03.jpg/" alt=\"What is FUD: Market manipulators.\" width=\"1000\" height=\"600\" /></p>\n<p>As mentioned before, <strong>FUD causes panic-selling</strong>, as traders try not to lose their investments. So, if the FUD is targeted at a particular coin, it can lead to a significant drop in its price. If the FUD doesn’t get dispersed quick enough, it can lead to a loss of confidence in the coin, the company, or even the entire industry, as people begin to literally feel fearful, uncertain and doubtful about continuing to invest their money into it.</p>\n<p>But then again, where there are losers, there are also winners. Market manipulators understand this very well, and every time they notice an irrational behavior becoming more and more prevalent in the market, they begin sensing new opportunities.</p>\n<p><strong>If the rumor is false, it will eventually get debunked, the FUD cycle will come to an end</strong>. But until then, the artificially created FUD does its job for them.</p>\n<p>If people began abandoning a certain coin, it would lead to its decrease in value. This opens up opportunities for market manipulators to rush in, buy this coin at a lower value, and then, once it gets back on its feet, sell it at a higher price than they bought it for.</p>\n<p><img style=\"display: block; margin-left: auto; margin-right: auto;\" title=\"What is FUD: Profit.\" src=https://www.bitdegree.org/"https://assets.bitdegree.org/crypto/storage/optimized/what-is-fud-04.jpg/" alt=\"What is FUD: Profit.\" width=\"1000\" height=\"495\" /></p>\n<p>Here’s a more prominent example of how one man got accused of market manipulation.  In May 2021, <strong>Elon Musk tweeted that Tesla would no longer accept Bitcoin as payment</strong> <strong>for its products</strong>. Of course, this caused a lot of panic among investors, which resulted in <a href=https://www.bitdegree.org/"/cryptocurrency-prices/bitcoin-btc-price/">the price of Bitcoin</a> falling by over 10% in less than a day.</p>\n<p>For doing so, he got accused of market manipulation. Of course, he knew that a tweet like this would result in Bitcoin’s price taking a hit. And you can be sure that there were traders who saw this tweet as an opportunity to buy Bitcoin with a discount, as they were sure that many people would begin panic-selling their crypto holdings.</p>\n<h2>How to See Through FUD?</h2>\n<p>Up until this point, I’ve explained that <strong>FUD may be caused by</strong>:</p>\n<ul class=\"pros-check\">\n<li>Information that eventually turns out to be true;</li>\n<li>Rumors that are not true;</li>\n<li>Rumors that are purposefully spread in order to cause panic and chaos in the market, so that market manipulators could profit from everyone’s losses.</li>\n</ul>\n<p>It’s obvious that this market is very much affected by emotions, especially negative ones. One of the main reasons for that is the fact that <strong>social media plays a very important role in the crypto industry</strong>.</p>\n<p>As new coins, technologies, updates, and opinions are minted on a daily basis, people need to stay in touch with all the latest developments within the industry, in order not to miss out or sleep on new investment opportunities.</p>\n<p>But, as always, it’s a double-edged sword. <strong>Overly-intense reliance on social media gets weaponized by those who profit from FUD</strong>. Social media enables rumors and negative information to spread quickly. Therefore, in order to stay sane and safe in the crypto sphere, it is of utmost importance to always remain critical, and avoid blindly jumping on hype, fear, or other emotion-based bandwagons.</p>\n<p>Thankfully, there are helpful tools that can help traders check the emotional climate in the market. The most famous one is called the “<strong><a href=https://www.bitdegree.org/"https://www.bitdegree.org/crypto/learn/crypto-terms/what-is-fear-and-greed-index/">Crypto Fear & Greed Index</a></strong>.”</p>\n<p><img style=\"display: block; margin-left: auto; margin-right: auto;\" title=\"What is FUD: Crypto Fear & Greed Index.\" src=https://www.bitdegree.org/"https://assets.bitdegree.org/crypto/storage/optimized/what-is-fud-05.jpg/" alt=\"What is FUD: Crypto Fear & Greed Index.\" width=\"1000\" height=\"622\" /></p>\n<p>By analyzing and measuring the prevailing emotions in the market, this index expresses how does the market feel at a given day on a scale from 0 to 100.</p>\n<p><strong>0 represents “Extreme fear”, while the highest number -</strong> <strong>100 - represents “Extreme greed.”</strong></p>\n<p>Logically, when FUD is all over the place, the index turns red, and the number will get lower. So, when someone begins panicking a bit too much, they can take a look at this index, and get a reality check about how severe the situation truly is. <strong>The index serves a simple purpose, and its to help people deal with their emotions and not to overreact</strong>. </p>\n<p>If you want to take a look at how does the market feel like today, you can see it at <a href=https://www.bitdegree.org/"https://www.bitdegree.org/cryptocurrency-prices/fear-and-greed-index/">Bitdegree.org, where you’ll find a daily-updated crypto fear & greed index.</p>\n<p>Nevertheless, life would be too easy if a simple index could help people avoid losses, or lead directly to gains. Sometimes, colossal changes happen super fast, and relying simply on indexes like this one could be very risky to your financial well-being.</p>\n<p>There’s something else that experienced traders would recommend to anyone who’s worried about being affected by FUD too much. It’s called <strong>diversifying your portfolio</strong>. It’s a simple investment strategy that improves your resilience when the FUD clouds begin rising.</p>\n<p><img style=\"display: block; margin-left: auto; margin-right: auto;\" title=\"What is FUD: Diversifying your portfolio.\" src=https://www.bitdegree.org/"https://assets.bitdegree.org/crypto/storage/optimized/what-is-fud-06.jpg/" alt=\"What is FUD: Diversifying your portfolio.\" width=\"1000\" height=\"610\" /></p>\n<p>If the market sentiment turns negative, and it affects a particular coin, traders better hope that this wasn’t the coin that they put all their savings into. It’s a crypto version of the old, wise saying that tells us <em>“not to put all the eggs into  a single basket.” </em>If one coin gets affected by FUD, other coins may be able to avoid it. <strong>Having a diversified portfolio is the best way of ensuring that a single rumor won’t take down someone’s entire financial well-being</strong>.</p>\n<p>And finally, anyone who enters crypto has to realize that many projects, especially the real, promising ones, are here for the long term. After conducting their own, personal due diligence procedures, traders must evaluate that truly potential projects will survive FUD caused by false, or easily-deniable rumors.</p>\n<p>In cases like this, once again, <strong>FUD creates new investment opportunities</strong>. When negative news causes a particular crypto coin’s price to drop, this may turn out to be a great opportunity to <em>“buy the dip”.</em> This expression translates to buying the coin at a lower price, and potentially profiting from it when the asset makes a comeback.</p>\n<p><img style=\"display: block; margin-left: auto; margin-right: auto;\" title=\"What is FUD: Trader.\" src=https://www.bitdegree.org/"https://assets.bitdegree.org/crypto/storage/optimized/what-is-fud-07.jpg/" alt=\"What is FUD: Trader.\" width=\"1000\" height=\"554\" /></p>\n<p>And in addition to that, <strong>many FUD occurrences could be defined as short-lived</strong>. The crypto space, be it the market itself, or the crypto social media bubbles, are hyper volatile. New discussions, accusations, ideas, and conflicts occur every minute. New rumors are being created every day, and most of them get forgotten very quickly.</p>\n<p>Therefore, <strong>calm and patient traders recognize attempts at causing FUD</strong>, and don’t let themselves be bothered by these efforts at catching your attention.</p>\n<h2>Wrapping Up</h2>\n<p>In this section, I’ve covered <strong>what is FUD in investing, from a crypto perspective, in what forms it appears, and how it can affect the crypto market</strong>. Quite naturally, recognizing FUD and being able to not let it get into your head is a must for every trader who wishes to see success in their trading ventures.</p>\n<p>Understanding what causes FUD, and that it can be an artificially created chaos that market manipulators could take advantage of, provides traders with a new perspective, and a new skill of being more suspicious & less susceptible to emotions and irrational behavior. And that’s definitely something that a trader should seek to obtain.</p>\n<p>I hope that from now on, you’ll recognize FUD, and the fear of asking the question <em>“what is FUD?”</em> won’t bother you anymore.</p>","preview_url":"https://www.bitdegree.org/crypto/learn/what-is-fud","youtube_video":{"id":153,"channel_id":1,"sort":1,"video_title":"What is FUD in Crypto? (Fear, Uncertainty & Doubt Explained)","description":"What is FUD in crypto & how to see through it?\n\n\"FUD\" stands for \"Fear, Uncertainty, Doubt.\" These emotions play a crucial role in crypto. But those who understand them, and understand how emotional and irrational some traders can become, know how to profit from FUD.\n\nIn this video, you'll learn what is FUD in investing (crypto), how to recognize it, and how to avoid FUD getting into your head. I'll explain what can cause FUD, what are the different types of FUD, and how traders learn how to deal with it.\n\nHave you, personally, ever experienced FUD? Have you ever noticed attempts at creating FUD? If you have any insights, or examples, be sure to share them with everyone else in the comment section below!\n\nTo scan the current market sentiment, you can find the Crypto Fear & Greed Index right here: https://www.bitdegree.org/cryptocurrency-prices/fear-and-greed-index\n\nVideo Time Table:\n\n0:00 Introduction to What is FUD in Crypto\n1:15 What is FUD?\n5:14 Real-life FUD Example\n5:48 How to See Through FUD?\n9:27 Wrap-up: What is FUD in Crypto?\n\nGet Quick Crypto Tips on Twitter - Follow:\nhttps://twitter.com/crypto_xplained\n\n#WhatisFUD #FUDCrypto #FearAndGreed","video_id":"_9iJ4tlM3LU","duration":620,"view_count":48,"thumbnail_url":"https://i.ytimg.com/vi/_9iJ4tlM3LU/hq720.jpg","thumbnail_width":1280,"thumbnail_height":720,"published_at":"2023-05-19 14:45:42","created_at":"2023-05-19T23:00:03.000000Z","updated_at":"2023-05-21T23:00:04.000000Z","channel":{"id":1,"title":"CryptoFinallyExplained","channel_id":"UCOryUY0yxC08eJtK23mNgiA","main_playlist_id":"UUOryUY0yxC08eJtK23mNgiA"}}},"chapterTitle":"Trading & Investing","cryptoBookSection":{"id":477,"featured_image_id":null,"original_id":null,"youtube_video_id":null,"author_id":42,"translator_id":null,"chapter_id":7,"title":"Investing in Cryptocurrency: How to Manage Your Risks?","slug":"investing-in-cryptocurrency","definition":"Did you know that one of the best ways of avoiding most crypto investment risks is setting an investment budget and doing extensive research before making any decisions?","status":"published","content":"<p>In this section, I’m going to tell you <strong>how to manage your risks</strong> while investing in <strong><a href=https://www.bitdegree.org/"https://www.bitdegree.org/crypto/tutorials/what-is-cryptocurrency/">cryptocurrency!
/n
If you’re reading this section, chances are that you know a thing or two about <a href=https://www.bitdegree.org/"https://www.bitdegree.org/crypto/learn/how-to-invest-in-crypto/">how to start investing in crypto</strong></a>, or it’s at least a topic that interests you, and you’re beginning to look into it. Whatever the case might be, one thing’s for sure - as the crypto market evolves, there are more and more people who are developing an interest in investing in crypto.</p>\n<p><em>That’s awesome!</em> However, I probably don’t need to tell you that it’s something that comes with some specific risks, as well - it’s not all just sunshine and rainbows, mind you! Before you start investing your hard-earned money into crypto, <strong>it’s crucial to understand risk management</strong>.</p>\n<p>In this section, we’re going to talk about what are the risks of investing in cryptocurrency. To start off, we’ll discuss those risks, to begin with, and after that, we’ll talk about how you can both manage and avoid them, as well as improve your investing strategies, in general!</p>\n<p><em>Let’s get to it!</em></p>\n<h2>What are the Risks Associated With Investing in Crypto?</h2>\n<p>Now, then - to begin, I’ll assume that you’re already quite savvy when it comes to the <em>“standard”</em> crypto concepts, such as <strong><a href=https://www.bitdegree.org/"https://www.bitdegree.org/crypto/learn/what-is-a-crypto-wallet/">crypto wallets</a></strong>, <strong><a href=https://www.bitdegree.org/"https://www.bitdegree.org/crypto/learn/how-do-cryptocurrency-exchanges-work/">exchange platforms</a></strong>, <strong><a href=https://www.bitdegree.org/"https://www.bitdegree.org/crypto/learn/blockchain-transaction/">how cryptocurrency transactions work</a></strong>, and so on.</p>\n<p><em>If that’s not the case, before moving further, check out the previous sections in this Crypto 101 Handbook - there are sections dedicated to all of these topics!</em></p>\n<p>So, the very first big question is rather self-evident - <strong>what are the risks associated with investing in crypto?</strong> Well, believe it or not, there are actually quite a few, really! The thing that makes this topic complicated, and void of a single, straightforward answer is that “crypto” is a rather broad term - <em>do you want to invest in specific cryptocurrencies? Maybe you’re looking to buy <a href=https://www.bitdegree.org/"https://www.bitdegree.org/crypto/learn/crypto-terms/what-is-non-fungible-token-nft/">NFTs? Or, you’re interested in using a <a href=https://www.bitdegree.org/"https://www.bitdegree.org/crypto/learn/crypto-terms/what-are-decentralized-applications-dapps/">dApp?
\n
$\"Investing$ rug pull</a> in the making</strong>.</p>\n<p>This is something that is especially relevant during a <strong><a href=https://www.bitdegree.org/"https://www.bitdegree.org/crypto/learn/crypto-terms/what-is-bull-market/">bull market</a></strong> - a period of time when the whole industry is experiencing huge growth, and many people are throwing their money into any and all projects that they come across. Bull runs are when a lot of malicious players come into the market, create scam projects, hype them up, and then run away with the investors’ money, at some point.</p>\n<p>Moving on, when discussing the most common mistakes that crypto investors make, it’s crucial to mention the platform (or, exchange) that you’ll be using. Put simply, while most of the focus usually lies on diversifying your portfolio and screening out any potential scams, it shouldn’t be forgotten that <strong>picking a <a href=https://www.bitdegree.org/"https://www.bitdegree.org/crypto/best-cryptocurrency-exchange/">reliable and trustworthy investing platform</a> is definitely part of the deal, too</strong>!</p>\n<p>In order to see just how important this is, all that you need to do is take a good look at the news cycle in the crypto space - it seems that, every other day or so, there’s a new breach in some platform’s security, or a new bankruptcy on the horizon. This has especially been exacerbated after the whole <a href=https://www.bitdegree.org/"https://www.bitdegree.org/crypto/news/sam-bankman-frieds-ftx-files-for-chapter-11-bankruptcy/">FTX exchange debacle</strong></a>.</p>\n<h2>Dealing With Cryptocurrency Investing Risks</h2>\n<p>So - those are some of the more common risks associated with investing in crypto. Of course, as I’ve mentioned earlier, <strong>there are many more potential risks out there</strong> - however, if you learn to deal with and manage the <em>“main”</em>, big risks, this should improve your investing journey, significantly!</p>\n<p>Speaking of which, as promised, I won’t leave you in the dark - now that you know what are the risks of investing in cryptocurrency, let’s discuss how to deal with these risks. <strong>Note that none of this is going to be financial advice</strong> - just some tips that I’ve gathered throughout the years. Make sure to always consult with a qualified professional before any and all investing-related ventures!</p>\n<p>Now, first and foremost, <strong>when it comes to “not investing more than you’re willing to lose”</strong>, the solution is simple - assuming that you have a stable monthly income, you should create a set budget every single month, of just how much you can put into your crypto investment portfolio, without it impacting your life.</p>\n<p><img style=\"display: block; margin-left: auto; margin-right: auto;\" title=\"Investing in cryptocurrency: \" src=https://www.bitdegree.org/"https://assets.bitdegree.org/crypto/storage/optimized/investing-in-cryptocurrency-03.jpg/" alt=\"Investing in cryptocurrency: \" width=\"1000\" height=\"578\" /></p>\n<p>A good way to look at it is by thinking - <em>what if this amount of money simply disappears?</em> <em>Will it impact me in any way? Will it hinder my quality of life? </em>If the answer is “yes”, you’re probably overinvested.</p>\n<p><strong>The question of portfolio diversification</strong> is closely related to this topic, as well. Most experts will tell you that it’s never a good idea to invest into a single asset, whether it’s a cryptocurrency, a stock, or anything else. Instead, it’s important to do some in-depth research, find a few different projects that have potential, and diversify your investment among them.</p>\n<p>Truthfully, investing in different asset classes is often an even better idea - however, this is something that falls far beyond the scope of this section.</p>\n<p>Moving on, we have the difficult question - <strong>how to avoid crypto scams, and choose a reliable project to invest in?</strong> Well, as you can probably guess, there’s only one answer - research, research, and more research. If you’re going to learn how to start investing in cryptocurrency, you’re going to be doing A LOT of that.</p>\n<p><em>I’m not kidding, mind you!</em> There really is no way around it - whether it’s the middle of a bull run, or a deep Crypto Winter, before committing any of your money towards some sort of a project, <strong>you need to perform an extensive amount of research</strong>.</p>\n<p>If you’re not sure where to start, I've written a <strong><a href=https://www.bitdegree.org/"https://www.bitdegree.org/crypto/learn/how-to-avoid-rug-pulls-in-crypto/">section about rug pulls</a></strong> (how to spot and avoid them), how to do research, and how to vet different projects and project types. Check it out - <em>perhaps that’s exactly what you need to kickstart your crypto investment journey?</em></p>\n<p>Outlining a few of the bigger aspects here, you should <strong>always perform a background check</strong> on the founders and the team behind a project, read through the whitepaper and roadmap, check out the community, and look into whether the project has any notable names standing behind it, in the form of venture capital investments.</p>\n<p>If all of these aspects are in-check, it’s a good green flag to start off with - you can then look into some of the more detailed aspects concerning the project.</p>\n<p><img style=\"display: block; margin-left: auto; margin-right: auto;\" title=\"Investing in cryptocurrency: The investment platform of choice.\" src=https://www.bitdegree.org/"https://assets.bitdegree.org/crypto/storage/optimized/investing-in-cryptocurrency-04.jpg/" alt=\"Investing in cryptocurrency: The investment platform of choice.\" width=\"1000\" height=\"558\" /></p>\n<p>Last but not least, <strong>the investment platform of choice</strong>. Obviously, nowadays, there are countless numbers of different crypto exchanges and brokerage platforms out there, all offering their clients a wide array of benefits and features. This makes it very easy to get lost and confused, and end up picking a platform with a <em>less-than-stellar</em> reputation.</p>\n<p>In order to avoid this confusion, you should <strong>spend just as much time vetting out your exchange of choice</strong>, as you’ve spent researching the cryptocurrencies that you’ve decided to invest in. Check the reputation of the platform, its security measures, history of break-ins, whether or not it has some sort of insurance on deposited assets, as well as the fees that it will charge you.</p>\n<p>Different additional features are cool and all, but security and fees should always be at the forefront of your research. If any of these two aspects are lacking, you could end up losing all of your assets, or paying a huge amount of money every single time that you perform a trade or crypto acquisition on the exchange.</p>\n<h2>Wrapping Up</h2>\n<p>So, then - those were some of the most common risks associated with investing in cryptocurrencies, as well as my personal tips on how to deal with each one of them. One thing that I do want to add is that <strong>these risks (as well as tips) are going to be applicable to most types of crypto investments that you might think of</strong> - whether it be crypto <strong><a href=https://www.bitdegree.org/"https://www.bitdegree.org/crypto/learn/coin-vs-token/">coins & tokens</a></strong>, <strong><a href=https://www.bitdegree.org/"https://www.bitdegree.org/crypto/learn/what-are-nfts/">NFTs, <a href=https://www.bitdegree.org/"https://www.bitdegree.org/crypto/learn/what-are-dapps-in-crypto/">dApps, or anything in between.</p>\n<p>To sum all of it up, let me just reiterate - the best ways to manage your cryptocurrency investing risks is to set an investment budget, as well as do as much research as you possibly can. Obviously, consulting a licensed financial advisor should be a priority, as well.</p>\n<p> </p>","meta_title":"How to Manage Your Risks When Investing in Cryptocurrency?","meta_description":"Are you thinking about investing in cryptocurrency? Before doing that, read this to find out what you should know about investing in crypto.","meta_keywords":"investing in cryptocurrency, what to know about cryptocurrency investing, how to start investing in cryptocurrency, how to make money investing in cryptocurrency, what are the risks of investing in cryptocurrency","order":8,"language":"en","created_at":"2023-04-20T11:47:32.000000Z","updated_at":"2023-04-24T13:41:44.000000Z","modified_content":"<p>In this section, I’m going to tell you <strong>how to manage your risks</strong> while investing in <strong><a href=https://www.bitdegree.org/"https://www.bitdegree.org/crypto/tutorials/what-is-cryptocurrency/">cryptocurrency!
/n
If you’re reading this section, chances are that you know a thing or two about <a href=https://www.bitdegree.org/"https://www.bitdegree.org/crypto/learn/how-to-invest-in-crypto/">how to start investing in crypto</strong></a>, or it’s at least a topic that interests you, and you’re beginning to look into it. Whatever the case might be, one thing’s for sure - as the crypto market evolves, there are more and more people who are developing an interest in investing in crypto.</p>\n<p><em>That’s awesome!</em> However, I probably don’t need to tell you that it’s something that comes with some specific risks, as well - it’s not all just sunshine and rainbows, mind you! Before you start investing your hard-earned money into crypto, <strong>it’s crucial to understand risk management</strong>.</p>\n<p>In this section, we’re going to talk about what are the risks of investing in cryptocurrency. To start off, we’ll discuss those risks, to begin with, and after that, we’ll talk about how you can both manage and avoid them, as well as improve your investing strategies, in general!</p>\n<p><em>Let’s get to it!</em></p>\n<h2>What are the Risks Associated With Investing in Crypto?</h2>\n<p>Now, then - to begin, I’ll assume that you’re already quite savvy when it comes to the <em>“standard”</em> crypto concepts, such as <strong><a href=https://www.bitdegree.org/"https://www.bitdegree.org/crypto/learn/what-is-a-crypto-wallet/">crypto wallets</a></strong>, <strong><a href=https://www.bitdegree.org/"https://www.bitdegree.org/crypto/learn/how-do-cryptocurrency-exchanges-work/">exchange platforms</a></strong>, <strong><a href=https://www.bitdegree.org/"https://www.bitdegree.org/crypto/learn/blockchain-transaction/">how cryptocurrency transactions work</a></strong>, and so on.</p>\n<p><em>If that’s not the case, before moving further, check out the previous sections in this Crypto 101 Handbook - there are sections dedicated to all of these topics!</em></p>\n<p>So, the very first big question is rather self-evident - <strong>what are the risks associated with investing in crypto?</strong> Well, believe it or not, there are actually quite a few, really! The thing that makes this topic complicated, and void of a single, straightforward answer is that “crypto” is a rather broad term - <em>do you want to invest in specific cryptocurrencies? Maybe you’re looking to buy <a href=https://www.bitdegree.org/"https://www.bitdegree.org/crypto/learn/crypto-terms/what-is-non-fungible-token-nft/">NFTs? Or, you’re interested in using a <a href=https://www.bitdegree.org/"https://www.bitdegree.org/crypto/learn/crypto-terms/what-are-decentralized-applications-dapps/">dApp?
\n
$\"Investing$ rug pull</a> in the making</strong>.</p>\n<p>This is something that is especially relevant during a <strong><a href=https://www.bitdegree.org/"https://www.bitdegree.org/crypto/learn/crypto-terms/what-is-bull-market/">bull market</a></strong> - a period of time when the whole industry is experiencing huge growth, and many people are throwing their money into any and all projects that they come across. Bull runs are when a lot of malicious players come into the market, create scam projects, hype them up, and then run away with the investors’ money, at some point.</p>\n<p>Moving on, when discussing the most common mistakes that crypto investors make, it’s crucial to mention the platform (or, exchange) that you’ll be using. Put simply, while most of the focus usually lies on diversifying your portfolio and screening out any potential scams, it shouldn’t be forgotten that <strong>picking a <a href=https://www.bitdegree.org/"https://www.bitdegree.org/crypto/best-cryptocurrency-exchange/">reliable and trustworthy investing platform</a> is definitely part of the deal, too</strong>!</p>\n<p>In order to see just how important this is, all that you need to do is take a good look at the news cycle in the crypto space - it seems that, every other day or so, there’s a new breach in some platform’s security, or a new bankruptcy on the horizon. This has especially been exacerbated after the whole <a href=https://www.bitdegree.org/"https://www.bitdegree.org/crypto/news/sam-bankman-frieds-ftx-files-for-chapter-11-bankruptcy/">FTX exchange debacle</strong></a>.</p>\n<h2>Dealing With Cryptocurrency Investing Risks</h2>\n<p>So - those are some of the more common risks associated with investing in crypto. Of course, as I’ve mentioned earlier, <strong>there are many more potential risks out there</strong> - however, if you learn to deal with and manage the <em>“main”</em>, big risks, this should improve your investing journey, significantly!</p>\n<p>Speaking of which, as promised, I won’t leave you in the dark - now that you know what are the risks of investing in cryptocurrency, let’s discuss how to deal with these risks. <strong>Note that none of this is going to be financial advice</strong> - just some tips that I’ve gathered throughout the years. Make sure to always consult with a qualified professional before any and all investing-related ventures!</p>\n<p>Now, first and foremost, <strong>when it comes to “not investing more than you’re willing to lose”</strong>, the solution is simple - assuming that you have a stable monthly income, you should create a set budget every single month, of just how much you can put into your crypto investment portfolio, without it impacting your life.</p>\n<p><img style=\"display: block; margin-left: auto; margin-right: auto;\" title=\"Investing in cryptocurrency: \" src=https://www.bitdegree.org/"https://assets.bitdegree.org/crypto/storage/optimized/investing-in-cryptocurrency-03.jpg/" alt=\"Investing in cryptocurrency: \" width=\"1000\" height=\"578\" /></p>\n<p>A good way to look at it is by thinking - <em>what if this amount of money simply disappears?</em> <em>Will it impact me in any way? Will it hinder my quality of life? </em>If the answer is “yes”, you’re probably overinvested.</p>\n<p><strong>The question of portfolio diversification</strong> is closely related to this topic, as well. Most experts will tell you that it’s never a good idea to invest into a single asset, whether it’s a cryptocurrency, a stock, or anything else. Instead, it’s important to do some in-depth research, find a few different projects that have potential, and diversify your investment among them.</p>\n<p>Truthfully, investing in different asset classes is often an even better idea - however, this is something that falls far beyond the scope of this section.</p>\n<p>Moving on, we have the difficult question - <strong>how to avoid crypto scams, and choose a reliable project to invest in?</strong> Well, as you can probably guess, there’s only one answer - research, research, and more research. If you’re going to learn how to start investing in cryptocurrency, you’re going to be doing A LOT of that.</p>\n<p><em>I’m not kidding, mind you!</em> There really is no way around it - whether it’s the middle of a bull run, or a deep Crypto Winter, before committing any of your money towards some sort of a project, <strong>you need to perform an extensive amount of research</strong>.</p>\n<p>If you’re not sure where to start, I've written a <strong><a href=https://www.bitdegree.org/"https://www.bitdegree.org/crypto/learn/how-to-avoid-rug-pulls-in-crypto/">section about rug pulls</a></strong> (how to spot and avoid them), how to do research, and how to vet different projects and project types. Check it out - <em>perhaps that’s exactly what you need to kickstart your crypto investment journey?</em></p>\n<p>Outlining a few of the bigger aspects here, you should <strong>always perform a background check</strong> on the founders and the team behind a project, read through the whitepaper and roadmap, check out the community, and look into whether the project has any notable names standing behind it, in the form of venture capital investments.</p>\n<p>If all of these aspects are in-check, it’s a good green flag to start off with - you can then look into some of the more detailed aspects concerning the project.</p>\n<p><img style=\"display: block; margin-left: auto; margin-right: auto;\" title=\"Investing in cryptocurrency: The investment platform of choice.\" src=https://www.bitdegree.org/"https://assets.bitdegree.org/crypto/storage/optimized/investing-in-cryptocurrency-04.jpg/" alt=\"Investing in cryptocurrency: The investment platform of choice.\" width=\"1000\" height=\"558\" /></p>\n<p>Last but not least, <strong>the investment platform of choice</strong>. Obviously, nowadays, there are countless numbers of different crypto exchanges and brokerage platforms out there, all offering their clients a wide array of benefits and features. This makes it very easy to get lost and confused, and end up picking a platform with a <em>less-than-stellar</em> reputation.</p>\n<p>In order to avoid this confusion, you should <strong>spend just as much time vetting out your exchange of choice</strong>, as you’ve spent researching the cryptocurrencies that you’ve decided to invest in. Check the reputation of the platform, its security measures, history of break-ins, whether or not it has some sort of insurance on deposited assets, as well as the fees that it will charge you.</p>\n<p>Different additional features are cool and all, but security and fees should always be at the forefront of your research. If any of these two aspects are lacking, you could end up losing all of your assets, or paying a huge amount of money every single time that you perform a trade or crypto acquisition on the exchange.</p>\n<h2>Wrapping Up</h2>\n<p>So, then - those were some of the most common risks associated with investing in cryptocurrencies, as well as my personal tips on how to deal with each one of them. One thing that I do want to add is that <strong>these risks (as well as tips) are going to be applicable to most types of crypto investments that you might think of</strong> - whether it be crypto <strong><a href=https://www.bitdegree.org/"https://www.bitdegree.org/crypto/learn/coin-vs-token/">coins & tokens</a></strong>, <strong><a href=https://www.bitdegree.org/"https://www.bitdegree.org/crypto/learn/what-are-nfts/">NFTs, <a href=https://www.bitdegree.org/"https://www.bitdegree.org/crypto/learn/what-are-dapps-in-crypto/">dApps, or anything in between.</p>\n<p>To sum all of it up, let me just reiterate - the best ways to manage your cryptocurrency investing risks is to set an investment budget, as well as do as much research as you possibly can. Obviously, consulting a licensed financial advisor should be a priority, as well.</p>\n<p> </p>","preview_url":"https://www.bitdegree.org/crypto/learn/investing-in-cryptocurrency","youtube_video":null,"featured_image":null},"chapterList":[{"id":1,"title":"Blockchain","slug":"blockchain","updated":null,"chapter":"https://assets.bitdegree.org/crypto/assets/crypto-book/chapters/learn-blockchain.jpg","chapter_simple":"https://assets.bitdegree.org/crypto/assets/crypto-book/chapters-simple/blockchain-101.jpg","rating":100,"sections":[{"slug":"what-is-blockchain","title":"What is the Blockchain?","featured_image_id":6412,"status":"published","chapter_id":1,"language":"en","order":1,"modified_content":null,"preview_url":"https://www.bitdegree.org/crypto/learn/what-is-blockchain","featured_image":{"id":6412,"uuid":"152ba579-ce8d-488a-9e06-bcd99e976b7d","public_url":"https://assets.bitdegree.org/crypto/storage/media/what-is-blockchain-626fbe085a0cd.o.jpg","path":"crypto/storage/media/what-is-blockchain-626fbe085a0cd.o.jpg","original_path":"crypto/storage/media/what-is-blockchain-626fbe085a0cd.jpg","name":"what-is-blockchain-626fbe085a0cd.o.jpg","original_name":"what-is-blockchain.jpg","title":null,"alt":null,"width":768,"height":478,"disk":"spaces","status":"uploaded","readable_file_size":"93.86KB"},"youtube_video":null},{"slug":"decentralized-blockchain","title":"Anonymous & Decentralized Blockchains: The Cornerstone of 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Crypto?","featured_image_id":7397,"status":"published","chapter_id":1,"language":"en","order":3,"modified_content":null,"preview_url":"https://www.bitdegree.org/crypto/learn/blockchain-transaction","featured_image":{"id":7397,"uuid":"e60dff45-4c5d-4b44-a2c1-a27e49f700e7","public_url":"https://assets.bitdegree.org/crypto/storage/media/blockchain-transaction-featured-mage.o.jpg","path":"crypto/storage/media/blockchain-transaction-featured-mage.o.jpg","original_path":"crypto/storage/media/blockchain-transaction-featured-mage.jpg","name":"blockchain-transaction-featured-mage.o.jpg","original_name":"blockchain-transaction-featured-mage.jpg","title":null,"alt":null,"width":768,"height":478,"disk":"spaces","status":"uploaded","readable_file_size":"85.83KB"},"youtube_video":null},{"slug":"crypto-fees","title":"The Different Types of Crypto Fees Explained","featured_image_id":7442,"status":"published","chapter_id":1,"language":"en","order":4,"modified_content":null,"preview_url":"https://www.bitdegree.org/crypto/learn/crypto-fees","featured_image":{"id":7442,"uuid":"f554012e-7fe1-4636-9718-81abd3499361","public_url":"https://assets.bitdegree.org/crypto/storage/media/crypto-fees-featured-image.o.jpg","path":"crypto/storage/media/crypto-fees-featured-image.o.jpg","original_path":"crypto/storage/media/crypto-fees-featured-image.jpg","name":"crypto-fees-featured-image.o.jpg","original_name":"crypto-fees-featured-image.jpg","title":null,"alt":null,"width":768,"height":478,"disk":"spaces","status":"uploaded","readable_file_size":"78.90KB"},"youtube_video":null},{"slug":"what-is-bridging-in-crypto","title":"The Key Notion Behind the Concept of Bridging in 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For?","featured_image_id":7272,"status":"published","chapter_id":1,"language":"en","order":6,"modified_content":null,"preview_url":"https://www.bitdegree.org/crypto/learn/types-of-blockchains","featured_image":{"id":7272,"uuid":"6ad01272-67ac-4719-8e88-7f01752a0628","public_url":"https://assets.bitdegree.org/crypto/storage/media/types-of-blockchains-featured-image.o.jpg","path":"crypto/storage/media/types-of-blockchains-featured-image.o.jpg","original_path":"crypto/storage/media/types-of-blockchains-featured-image.jpg","name":"types-of-blockchains-featured-image.o.jpg","original_name":"types-of-blockchains-featured-image.jpg","title":null,"alt":null,"width":768,"height":478,"disk":"spaces","status":"uploaded","readable_file_size":"110.34KB"},"youtube_video":null}]},{"id":2,"title":"Cryptocurrencies","slug":"cryptocurrencies","updated":null,"chapter":"https://assets.bitdegree.org/crypto/assets/crypto-book/chapters/learn-cryptocurrencies.jpg","chapter_simple":"https://assets.bitdegree.org/crypto/assets/crypto-book/chapters-simple/cryptocurrencies-101.jpg","rating":100,"sections":[{"slug":"what-is-a-cryptocurrency","title":"What is a Cryptocurrency?","featured_image_id":7751,"status":"published","chapter_id":2,"language":"en","order":1,"modified_content":null,"preview_url":"https://www.bitdegree.org/crypto/learn/what-is-a-cryptocurrency","featured_image":{"id":7751,"uuid":"791c4203-70ae-4c68-8a02-bc1769331e86","public_url":"https://assets.bitdegree.org/crypto/storage/media/what-is-cryptocurrency-featured-image.o.jpg","path":"crypto/storage/media/what-is-cryptocurrency-featured-image.o.jpg","original_path":"crypto/storage/media/what-is-cryptocurrency-featured-image.jpg","name":"what-is-cryptocurrency-featured-image.o.jpg","original_name":"what-is-cryptocurrency-featured-image.jpg","title":null,"alt":null,"width":768,"height":478,"disk":"spaces","status":"uploaded","readable_file_size":"90.10KB"},"youtube_video":null},{"slug":"how-does-cryptocurrency-work","title":"How Does Cryptocurrency 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All Crypto From

Scratch!

Crypto 101 Handbook

Chapter 1: Blockchain

1.1

What is the Blockchain?
1.2

Anonymous & Decentralized Blockchains: The Cornerstone of Crypto
1.3

What is a Blockchain Transaction in Crypto?
1.4

The Different Types of Crypto Fees Explained
1.5

The Key Notion Behind the Concept of Bridging in Crypto
1.6

Different Types of Blockchains: What to Look Out For?
Chapter 2: Cryptocurrencies

2.1

What is a Cryptocurrency?
2.2

How Does Cryptocurrency Work?
2.3

Is Cryptocurrency a Good Investment? The Pros & Cons
2.4

Coin VS Token: How Do They Differ?
2.5

What are Stablecoins, Altcoins & Wrapped Coins?
2.6

Bitcoin: the Pioneer of the Crypto World
2.7

The Ultimate Blockchain for dApp Creation: Ethereum
2.8

What is Cardano and What is It Used For?
2.9

Shiba Inu: the Dogecoin Killer
2.10

Is Solana an Improved Version of Ethereum?
2.11

The Bridge Between Blockchains: Polkadot
2.12

Polygon: the Essential Scaling Solution for Ethereum
2.13

The Practical Use of Crypto
Chapter 3: Crypto Exchanges

3.1

How do Cryptocurrency Exchanges Work?
3.2

DEX VS CEX: Two Sides of the Crypto Exchange Industry
3.3

Crypto Day Trading: The Difference Between Buying, Trading, and Swapping
3.4

KYC & AML: The Key to Complying With Legal Industry Standards
3.5

From Fiat to Crypto: How to Buy Crypto for the First Time
3.6

Taking Profits: Turning Crypto Into Fiat
3.7

You’ve Got Crypto: What Can You Do With It?
Chapter 4: Crypto Wallets

4.1

What is a Crypto Wallet?
4.2

Hot Wallet VS Cold Wallet: Which One to Pick?
4.3

What are Non-Custodial Crypto Wallets?
4.4

Metamask: The Leading Non-Custodial Wallet
4.5

The Key Crypto Wallet Safety Practices: How Safe Can Crypto Be?
Chapter 5: NFTs

5.1

What are Non-Fungible Tokens (NFTs)?
5.2

NFT Trading: The Ins and Outs
5.3

Tips and Tricks of Choosing the Right NFTs
5.4

How to Store NFTs: Best Practices
5.5

How to Create Your Own NFTs?
5.6

Making Passive Money with NFTs
Chapter 6: dApps & Defi

6.1

What is Decentralized Finance (DeFi)?
6.2

DeFi 2.0: The New Version of Decentralized Finance
6.3

What Are dApps and How Do They Work?
6.4

Picking the Right dApps: Dos and Don'ts
6.5

Web 3.0: The Future of the Internet
6.6

What is the Core Purpose of Smart Contracts?
6.7

The Notion of a Decentralized Autonomous Ogranization (DAO)
6.8

What is the Goal of Staking Crypto Assets?
6.9

What is a Liquidity Pool and How Does It Work?
6.10

Automated Market Maker: the Cornerstone of the Decentralized Crypto Exchange Industry
6.11

The Main Yield Farming Techniques
6.12

Crypto Oracles: The Link Between Blockchain and Outside World Data
6.13

The Peculiarities of Decentralized Crypto Gambling
6.14

Metaverse: A New Perception of Reality
Chapter 7: Trading & Investing

7.1

Where Can You Trade Cryptocurrencies?
7.2

Investing in Crypto: What Investing Options Do You Have?
7.3

ICO vs IDO vs IEO: Which One is the One?
7.4

What are Crypto Airdrops and How to Get Them?
7.5

How to Get Free Crypto Assets?
7.6

What is Crypto Arbitrage: The Main Principles
7.7

What is FUD: How to Use It to Your Advantage While Investing in Crypto?
7.8

Investing in Cryptocurrency: How to Manage Your Risks?
7.9

What is a Rug Pull in Crypto?
7.10

How to Spot and Avoid Rug Pulls?
7.11

The Key Legal Techniques of Avoiding Crypto Taxes
Chapter 8: Crypto Analysis

8.1

Bearish and Bullish Markets: Do They Matter?
8.2

5 Best Crypto Technical Analysis Indicators You Must Know About
8.3

Technical Analysis: What are Candlesticks, Trendlines, and Patterns?
8.4

Crypto Tracking: How to Track Your Favorite Coins & Tokens?
8.5

Crypto Research Fundamentals & Social Signals: Your Daily Trading Strategy
Chapter 9: Mining

coming soon

Chapter 10: Crypto Terms

10.1

All Crypto Terms

Handbook Cover Page

Chapter 7: Trading & Investing

Investing in Cryptocurrency: How to Manage Your Risks?

Did you know that one of the best ways of avoiding most crypto investment risks is setting an investment budget and doing extensive research before making any decisions?

Medium

8 minutes

In this section, I’m going to tell you how to manage your risks while investing in cryptocurrency!

If you’re reading this section, chances are that you know a thing or two about how to start investing in crypto, or it’s at least a topic that interests you, and you’re beginning to look into it. Whatever the case might be, one thing’s for sure - as the crypto market evolves, there are more and more people who are developing an interest in investing in crypto.

That’s awesome! However, I probably don’t need to tell you that it’s something that comes with some specific risks, as well - it’s not all just sunshine and rainbows, mind you! Before you start investing your hard-earned money into crypto, it’s crucial to understand risk management.

In this section, we’re going to talk about what are the risks of investing in cryptocurrency. To start off, we’ll discuss those risks, to begin with, and after that, we’ll talk about how you can both manage and avoid them, as well as improve your investing strategies, in general!

Let’s get to it!

What are the Risks Associated With Investing in Crypto?

Now, then - to begin, I’ll assume that you’re already quite savvy when it comes to the “standard” crypto concepts, such as crypto wallets, exchange platforms, how cryptocurrency transactions work, and so on.

If that’s not the case, before moving further, check out the previous sections in this Crypto 101 Handbook - there are sections dedicated to all of these topics!

So, the very first big question is rather self-evident - what are the risks associated with investing in crypto? Well, believe it or not, there are actually quite a few, really! The thing that makes this topic complicated, and void of a single, straightforward answer is that “crypto” is a rather broad term - do you want to invest in specific cryptocurrencies? Maybe you’re looking to buy NFTs? Or, you’re interested in using a dApp?

As you’ve probably guessed it by now, all of these investment options are going to come with their own risks. It can all get confusing, really fast!

Worry not, though - I won’t bore you with every single possible investment risk that exists. Instead, we’ll focus on what to know about cryptocurrency investing, and the main (or, most commonly-encountered) risks - if you understand how to avoid the most common ones, you’ll be able to apply that knowledge throughout the rest of your trading and investing ventures, no problem.

Now, then, what are these risks? Well, at the top of the list, you have the age-old saying - “never invest more than you’re willing to lose”. Unfortunately, probably the biggest risk associated with investing in crypto is just that - people not being smart with their budget, and thus, overinvesting into what is probably the most volatile market in the world. It’s the No.1 no-no when it comes to learning how to make money investing in cryptocurrency!

The risk here is pretty self-explanatory - if the market or project crashes, so will your portfolio.

That’s another point, too - investing in a single or a couple of crypto projects. While it’s not necessarily a “risk”, in and of itself, it can definitely become one. If you have 100% of your portfolio in a single crypto asset, and it suddenly crashes in price, you’ll be left holding the bag, with some huge losses that could have been avoided, otherwise.

Then, there are some of the more “direct” risks, so to speak. First of all, a big risk of investing in cryptocurrency has to do with the project that you’re putting money into being a scam, or a potential rug pull in the making.

This is something that is especially relevant during a bull market - a period of time when the whole industry is experiencing huge growth, and many people are throwing their money into any and all projects that they come across. Bull runs are when a lot of malicious players come into the market, create scam projects, hype them up, and then run away with the investors’ money, at some point.

Moving on, when discussing the most common mistakes that crypto investors make, it’s crucial to mention the platform (or, exchange) that you’ll be using. Put simply, while most of the focus usually lies on diversifying your portfolio and screening out any potential scams, it shouldn’t be forgotten that picking a reliable and trustworthy investing platform is definitely part of the deal, too!

In order to see just how important this is, all that you need to do is take a good look at the news cycle in the crypto space - it seems that, every other day or so, there’s a new breach in some platform’s security, or a new bankruptcy on the horizon. This has especially been exacerbated after the whole FTX exchange debacle.

Dealing With Cryptocurrency Investing Risks

So - those are some of the more common risks associated with investing in crypto. Of course, as I’ve mentioned earlier, there are many more potential risks out there - however, if you learn to deal with and manage the “main”, big risks, this should improve your investing journey, significantly!

Speaking of which, as promised, I won’t leave you in the dark - now that you know what are the risks of investing in cryptocurrency, let’s discuss how to deal with these risks. Note that none of this is going to be financial advice - just some tips that I’ve gathered throughout the years. Make sure to always consult with a qualified professional before any and all investing-related ventures!

Now, first and foremost, when it comes to “not investing more than you’re willing to lose”, the solution is simple - assuming that you have a stable monthly income, you should create a set budget every single month, of just how much you can put into your crypto investment portfolio, without it impacting your life.

A good way to look at it is by thinking - what if this amount of money simply disappears? Will it impact me in any way? Will it hinder my quality of life? If the answer is “yes”, you’re probably overinvested.

The question of portfolio diversification is closely related to this topic, as well. Most experts will tell you that it’s never a good idea to invest into a single asset, whether it’s a cryptocurrency, a stock, or anything else. Instead, it’s important to do some in-depth research, find a few different projects that have potential, and diversify your investment among them.

Truthfully, investing in different asset classes is often an even better idea - however, this is something that falls far beyond the scope of this section.

Moving on, we have the difficult question - how to avoid crypto scams, and choose a reliable project to invest in? Well, as you can probably guess, there’s only one answer - research, research, and more research. If you’re going to learn how to start investing in cryptocurrency, you’re going to be doing A LOT of that.

I’m not kidding, mind you! There really is no way around it - whether it’s the middle of a bull run, or a deep Crypto Winter, before committing any of your money towards some sort of a project, you need to perform an extensive amount of research.

If you’re not sure where to start, I've written a section about rug pulls (how to spot and avoid them), how to do research, and how to vet different projects and project types. Check it out - perhaps that’s exactly what you need to kickstart your crypto investment journey?

Outlining a few of the bigger aspects here, you should always perform a background check on the founders and the team behind a project, read through the whitepaper and roadmap, check out the community, and look into whether the project has any notable names standing behind it, in the form of venture capital investments.

If all of these aspects are in-check, it’s a good green flag to start off with - you can then look into some of the more detailed aspects concerning the project.

Last but not least, the investment platform of choice. Obviously, nowadays, there are countless numbers of different crypto exchanges and brokerage platforms out there, all offering their clients a wide array of benefits and features. This makes it very easy to get lost and confused, and end up picking a platform with a less-than-stellar reputation.

In order to avoid this confusion, you should spend just as much time vetting out your exchange of choice, as you’ve spent researching the cryptocurrencies that you’ve decided to invest in. Check the reputation of the platform, its security measures, history of break-ins, whether or not it has some sort of insurance on deposited assets, as well as the fees that it will charge you.

Different additional features are cool and all, but security and fees should always be at the forefront of your research. If any of these two aspects are lacking, you could end up losing all of your assets, or paying a huge amount of money every single time that you perform a trade or crypto acquisition on the exchange.

Wrapping Up

So, then - those were some of the most common risks associated with investing in cryptocurrencies, as well as my personal tips on how to deal with each one of them. One thing that I do want to add is that these risks (as well as tips) are going to be applicable to most types of crypto investments that you might think of - whether it be crypto coins & tokens, NFTs, dApps, or anything in between.

To sum all of it up, let me just reiterate - the best ways to manage your cryptocurrency investing risks is to set an investment budget, as well as do as much research as you possibly can. Obviously, consulting a licensed financial advisor should be a priority, as well.

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Crypto 101 Handbook

Investing in Cryptocurrency: How to Manage Your Risks?

What are the Risks Associated With Investing in Crypto?

Dealing With Cryptocurrency Investing Risks

Wrapping Up

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