How Not to Get “Squid Gamed” in Financial Markets

Valentina Drofa, Founder and CEO of Drofa Comms, explains how not to fall victim to financial market scams.

The world of finance never runs out of lessons for market players. But unfortunately, a lot of such players fade away into history, and investors keep making the same mistakes. The world of crypto, despite its novelty, often employs the same scam setups that have stood the test of time on the stock and currency markets.

In its brief history, the crypto market has already amassed hundreds of instances of fraud at different scales, but with extremely similar lead-ups. Let’s take a closer look at one of the latest scam projects, Squid Games, which caused a fair deal of noise in the press over the last few weeks.

In early November, the media landscape resounded with an uproar over Squid coin, the token for the Squid Game crypto game platform, inspired by the Netflix hit of the same name. Publications in major media outlets like the BBC and CNBC spurred interest and trust in the token. On November 1, the Squid coin increased 77-fold, up to $2,865, after which its price plummeted to under $1, users lost over $11 million, and the project itself was shut down. For many, this scenario came as a shock.

I would like to point out that there is nothing new in what happened with Squid. The scam remains the same: while Ponzi had people buy postal reply coupons, modern scammers offer investors coins and tokens. There have been plenty of similar instances before, and it’s likely that investors were hoping for a repeat of Dogecoin, a joke project that took off because Elon Musk tweeted about it. Over the last year, the meme coin grew 10,544%, reaching $0.73 on May 7, 2021. But Dogecoin is the exception rather than the rule, and most often, with investments into this sort of cryptocurrencies, traders need to be ready to get “squid gamed” and lose what they invested.

And while Squid is a relatively new kind of token intended for gaming, scammers had previously implemented the exact same pyramid schemes, but with traditional crypto coins. For example, in 2014 there was outrage around OneCoin, launched by a Bulgarian enterpreneur, Dr Ruja Ignatova, which allegedly offered “educational packages’’ and donations for children in need. A year later, it turned out that OneCoin was nothing more than a Ponzi scheme sucking investments from millions of clients from 175 countries. There are no exact figures on how much was invested in OneCoin, but estimates range from 4 to 15 million euros. CoinTelegraph reported that the founder’s bio varied from source to source, and her partners in the project had previously been involved in setting up similar scams. The project website claimed that OneCoin was registered in Gibraltar and Bulgaria, but offered its users no supporting documentation. Most importantly, none of the project’s websites gave information on the coin’s tech specs.

Literally one year from when Ignatova’s scheme was revealed, there was a new one on the market: PlusToken, a pyramid scheme sponsored by investors from China and South Korea. In three years of operation they managed to collect over $2 billion in investments from 2.6 million users. Following the classic Ponzi scheme playbook, the founders promised their investors a quick profit without going into detail about PlusToken.

How to Recognise a Ponzi Scheme

In all of these cases, the scam was recognisable early on. But how? The approach is simple. Before making any investment, you need to carefully study the token and its creators. If there is nothing backing the tokens, the founders hide information about themselves, and no one answers the phone numbers listed on the project’s website, there’s a very high chance that you’re looking at a scam.

With the Squid token, all the red flags of dishonesty were right there: the project’s founders had no profiles on social media, calls to the phone numbers on the project’s website didn’t go through, and the source code for the token itself had no option for a user to sell it. Microsoft was listed as a partner on Squid’s website, which was, of course, false. Aggressive marketing and emotional appeals should also have tipped users off. Squid Game’s popularity did its fans a disservice, making them let their guard down. The Squid token had nothing to do with Netflix or the show’s creators.

Looking at these sorts of scams leads to one simple conclusion: don’t base your decisions on emotions or on liking the show or dog breed the project is named after.

Learn from History

The crypto market is still young, and because of the lack of regulation, it is often compared to the Wild West. The Financial Conduct Authority has been continuously warning retail consumers of the crypto market being quite unreliable. The FCA highlights that the prices on crypto are extremely volatile and the space in general is still unregulated for the most part. They have also issued a statement saying that social media is the main reason for crypto market popularity among younger investors. Quite surely, the hype is often a boon to scammers, and examples of that abound.

Unfortunately, the market’s memory remains woefully short, and blind trust will keep on letting investors down. It’s important to remember that investments are a responsibility, and that responsibility primarily rests with whoever invests the funds. The keys to success in financial markets are constantly expanding your knowledge, carefully studying assets, and knowing how to evaluate risks.