Can you trust a coin that's been described as "Crypto's Newest Ponzi"
As long as money has existed there have been get rich quick schemes. Victims are promised easy riches within a short space of time, often with minimal or zero risk. Sadly, such schemes are usually little more than scams that prey upon vulnerability and greed.
It seems there's a good chance that the latest of these could well be the crypto token SafeMoon.
One of the things that undermines the credibility of the more legitimate and well-established cryptocurrencies like Bitcoin and Ethereum is the existence of Alt-Coins and so-called Meme-Coins. While some such coins have emerged with a genuine purpose besides making founders and investors wealthy, most amount to little more than modern-day get-rich-quick schemes.
When crypto-skeptics hear of recent phenomena such as DogeCoin (a Meme Coin that was originally started as a joke) having climbed in value by 6500% in 2021, mostly fuelled by tweets and bluster from people like Elon Musk, it reaffirms their belief that crypto as a whole is just a bubble or worse, a scam.
The problems are compounded by conflicting messages and online hype. There are tales from those who've made legitimate fortunes in short spaces of time, merely by day-trading such tokens. They got lucky buying the coins when they were priced at tiny fractions of a cent, and sold when prices temporarily surged.
Then there are the stories from those who've been drawn in hoping to emulate the successes of the early adopters, seduced by promises of a quick and easy buck, or even the prospect of fortunes. They risk more than they can afford to lose, buying at the top price and seeing their wealth dwindle away to nothing when it crashes.
Their actions are the consequence of an investment strategey based on FOMO - Fear Of Missing Out.
The net effect is that some get rich, many others lose money and the relatively steady and enduring cryptocurrencies like Bitcoin get tarred with the same brush, often seeing their prices (and reputations) temporarily dulled in the aftermath of Alt-Coin crashes.
The latest crypto-token that has prompted the usual investor behaviors, is SafeMoon.
What is SafeMoon?
SafeMoon is described on the its website as "a community driven, fair launched DeFi Token."
It seems possible that the founders of SafeMoon perhaps launched it with noble intentions, given that it is structured in a way that encourages those who buy the coin to hold it for the long term. This is achieved by the coin deducting a 10% fee from every sale and redistributes 5% of that to existing holders. Such a 'tax' could notionally deter anyone from day-trading since gains would have to exceed the deduction to make any sale worthwhile. The problem is that in the short-term, its gains (fuelled by market frenzy and online hype) have surged by much more than the 10% deduction intended to discourage selling.
SafeMoon has issued 1 Quadrillion tokens (or 1,000 trillion) - a staggering number. As at 19th April 2021 its price had surged by 2900% in the preceeding 3 weeks. At the time of writing it's priced at $0.000004469 per coin and at such a tiny price it's proven to be attracive for speculators wanting to take a punt with a small investment that would secure a few hundred thousand of the coins.
Why not take a chance?
The size of the token issue itself should be a red-flag. Consider that many of the memes that have appeared online center on the seemingly achievable notion of the price of SafeMoon achieving "just one cent". In a recent episode of The Breakdown Podcast from CoinDesk, the host pointed out that if it were to reach that price, its market capitalisation would be $100 Trillion - one quarter of the wealth of the entire world.
Unsurprisingly, and confusingly for would be investors, social media platforms are full of posts from early traders bragging of their successes:
Correspondingly, opportunistic videos have sprung up on YouTube from enthusiastic 'investors' advising exactly how to buy it:
The actual use-case of the SafeMoon token seems largely irrelevant at this stage, and even having trawled through their own website and the analysis of various other articles in the media it's still unclear what useful purpose it serves or what the long-term aim of SafeMoon is.
While many will make a bit of easy money through a well-timed bet, there will be many more who are likely to stake more than they can afford to lose and who will come away hurting financially and embittered towards cryptocurrency as a whole.
What's behind the price surge?
SafeMoon appears to be little more than a crypto-novelty that's been created simply because it could be. The hope of those who've created it and those who've invested in it is that the price will increase radically in the short term as a result of increasing public interest and bluster on social media so that the notional tokens can then be sold for a profit.
This is the nature of such tokens.
In explaining the reasons behind the price gain, it's interesting to note that various tweets have suggested the possibility that SafeMoon is currently the object of focus for an online consortium of co-ordinated day-traders who are targeting it with a view to pumping up the price before dumping their own holding. This is the kind of activity that caused shares in GameStop to surge as they did earlier this year - the target of the WallStreetBets group on Reddit.
Whether the price pumping is the result of co-ordinated activities of groups on plaforms such as Discord and Reddit, or a combined effect of the posts on Twitter, the YouTube videos and the frenzy of a rapidly rising price that tends to draw further investors in out of a sense of FOMO, matters little. When the price gets too high to sustain, holders will jump ship, prompting the price to plummet and hurting those who don't get out in time.
The same has been true throughout time for all the various scams and schemes that lure people in with the promise of a quick and easy fortune. Sooner or later the bubble bursts.
Why does it matter for the wider cryptocurrency market?
Some might wonder what the problem is. Who cares if a few lucky (or brave) people manage to make a quick buck?
There's an ethical answer first and foremost - there's little difference between crypto tokens like SafeMoon that have little real utility and are merely a means of manipulating a commodity for short-term gain, and a confidence trickster looking to sell magic beans to gullible buyers. It's like a pyramid scheme where those at the foot of the pyramid might make a little money, but in reality it's the founders at the top who make the most. They're hurt the least when it all comes tumbling down.
The other reason it matters is the potential damage that such coin and token issues do to undermine the reputation and public faith in genuine cryptocurrencies with long-term utility and genuine value to add to society, like Bitcoin and Ethereum.
Bitcoin has a long-term purpose - to decentralise and fundamentally alter the nature of our financial system so that our wealth cannot be controlled and manipulated by governments to such a degree as it is currently. It has the potential to reduce the cost and complexity of transferring money around the world and across national borders. It gives all people access to a genuine store of value that cannot be deflated by governments printing new currency at will.
While many who are skeptical will point to its past price volatility as a common feature with tokens such as SafeMoon, the differences are significant for the many real utilities that Bitcoin offers.
Bitcoin is known for attracting extremes of emotion from those who are in favor of it compared to those who are skeptical. Episodes like that currently being seen with SafeMoon only tend to fuel those emotions and confuse the situation regarding cryptocurrency.
What to do?
It's a matter of individual choice when it comes to any investment. But the situation seems clear and with emotions put aside, the sensible move is only ever to invest money that you can afford to lose, and preferably only in things that you genuinely understand.
In the case of SafeMoon, some will undoubtedly make money by trading it - a few will get rich. The question is whether it will have an enduring future, or whether it will fall apart in the near term and bring down many investors hopes and dreams with it as it collapses.
Note: This article is for informational purposes only. It should not be considered Financial or Legal Advice. Consult a financial professional before making any major financial decisions.