Please ensure Javascript is enabled for purposes of website accessibility

Why Are Crypto Investors Talking About SafeMoon?

By Jason Hawthorne - May 20, 2021 at 9:25AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The latest ironic asset to catch on comes with a price.

Thanks to Bitcoin and the recent success of Dogecoin -- an ironically created joke cryptocurrency -- traders are finding a bevy of options for their speculative dollars. Stories in the media about newly minted cryptocurrency millionaires only fuel the fever to find the next asset to inflate.

One of the more recent options is Safemoon. It has many of the hallmarks of a token that could see significant appreciation as buyers hope to write their own rags-to-riches stories. Like most speculative assets, there are a few flashing red lights that should give investors pause before putting their chips on the table.

A man in a suit about to pop a bubble with a rising stock chart in it.

Image source: Getty Images.

Safemoon wants to be too legit to quit

SafeMoon was created in March and is encoded to benefit those who hold on to the asset instead of selling or trading it. It launched with 1 quadrillion tokens (that's 15 zeroes), and has systematically eliminated a portion of those with each transaction. It has managed to become a $4 billion asset in about two months of existence, and its price has risen more than 1.5 million percent, even after a big sell-off this week.

Safemoon isn't the easiest token to buy. It's currently available on eight crypto exchanges and has a pinned tweet of a video showing the currency-swap process required to make a purchase. Despite the lack of accessibility, the allure has been its promise to reward holders and penalize sellers. Incredibly, it's the third-most-visited page on coinmarketcap.com

Safemoon was founded by a U.S. military veteran who has likened the token to buying shares of Apple in the early days. It's difficult to pinpoint the similarity beyond his hope that it will experience massive appreciation over time.

That feeling could be based on the supply-and-demand curve in the asset's initial white paper. It's the kind you'd find in an Economics 101 course, and makes the case that as supply for Safemoon is destroyed, the price will go up. As you might expect, things aren't that simple.

The designers knew how to work it

Today, there are less than 600 trillion SAFE tokens in circulation. That's because each time a holder transfers them to another wallet, there's a 10% penalty. Half of that 10% is destroyed and half is distributed to a pool for other holders of Safemoon. It calls these "static rewards" and offers them to keep the hands of its 2 million holders steady.

That's convinced some that as the tokens get more scarce, the price will rise. Of course, there has to be demand for that equation to balance. Right now, interest is high. However, history hasn't been kind to those who bought something for the sole purpose of selling it to someone else in the future at a higher price.

Besides the obvious risks of buying something with no uses and no intrinsic value, there's a tangled string of connections from the founder and those promoting it. Despite positioning itself as decentralized finance, Safemoon has a CEO and a chief operating officer. That COO spent the past few years managing a YouTube influencer who started pushing the asset to his 4 million followers when it was launched.

Shortly after that, other online personalities began promoting it. To gain legitimacy, Safemoon commissioned blockchain security firm CertiK for an audit. The result probably wasn't what they were hoping for. 

There are good reasons to lean back

CertiK found 13 issues including one it deemed "major." It turns out, as those tokens from transaction penalties are collected, a significant portion goes to an owner address. Right now, that address is worth $2.6 billion. That's a big problem if the address turns out to benefit anyone other than existing holders. Although CertiK maintains that its audit is not an endorsement or approval, Safemoon's Twitter handle promptly announced the audit was complete with a video boasting it was "CertiK Approved."

The most recent celebrity to promote Safemoon is Barstool Sports founder Dave Portnoy. On Monday, he held a press conference announcing he would be backing the crypto. Even he told his followers to invest at their own risk, saying it might be a Ponzi scheme and claiming he had no idea how it worked.

That's admirable transparency and a fair warning for anyone blindly following his moves. Of course, he also pointed out that if it's a Ponzi scheme, you should get in on the ground floor.

Approaching investing like that is a good way to lose money quickly. The benefit of identifying any scam is to avoid it, not get in early to take advantage of others.

For those who feel like they're missing out on the crypto craze and are willing to gamble, it might be best to look elsewhere for opportunities to roll the dice. The basic protocols of Safemoon are designed like a bank that adds a 10% fee anytime you make a purchase. Few would open an account after hearing that sales pitch. Safemoon seems just as compelling.

Jason Hawthorne has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Apple and Twitter. The Motley Fool recommends the following options: long March 2023 $120 calls on Apple and short March 2023 $130 calls on Apple. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Apple Inc. Stock Quote
Apple Inc.
AAPL
$171.28 (1.66%) $2.79
Twitter, Inc. Stock Quote
Twitter, Inc.
TWTR
$44.26 (0.73%) $0.32
Bitcoin Stock Quote
Bitcoin
BTC
$24,028.31 (-1.35%) $-329.97
Dogecoin Stock Quote
Dogecoin
DOGE
$0.07 (-0.82%) $0.00

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
389%
 
S&P 500 Returns
125%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 08/12/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.