The 5 Biggest Mistakes You Can Make When Buying Safemoon

Tempted to buy Safemoon? Read this first.

Safemoon has attracted its fair share of headlines and dollars since its launch in March. But is it worth your time? If any of these five things apply to you, proceed with caution before you buy Safemoon.

1. You don't know what Safemoon does

With any investment, whether it's cryptocurrency, stocks, wine, or real estate, you need to understand what you are buying and how it stacks up against other investment opportunities.

For crypto, try asking yourself whether you could explain what purpose that coin serves to a relative -- and why it stands out. If you can't, you might want to reconsider.

In the case of Safemoon, its whitepaper talks a lot about its tokenomics -- including a 10% fee for each transaction to encourage people to hold and reduce volatility. But there's not a lot of info about what purpose Safemoon serves. The website promises the development of a Safemoon wallet, exchange, charity project, video integration, and an NFT exchange.

There are three issues here:

• A whitepaper should tell you more than just how the coin will function. It should tell you what people will use that coin for. And that's not clear with Safemoon.
• According to its website, several of the above projects should have begun in the second quarter of 2021, which has ended.
• There are already a number of excellent decentralized exchanges on the market. Beyond the 10% transaction fee, it is hard to see what Safemoon adds to what's already out there.

2. You're hoping for short-term gains

Safemoon's price jumped 2,499,900% in the first six weeks after it launched, and those huge gains might seem appealing. Sadly, buying in the hope of a sizable short-term win is usually more akin to gambling than investing. Especially if you're buying a little known cryptocurrency like Safemoon.

Sure, if you'd bought $1,000 of Safemoon when it first launched, you'd have purchased 1 trillion tokens, which would make you a millionaire today. But given that Safemoon is not listed on any major cryptocurrency exchanges, you may struggle to sell those tokens and realize those gains.

And if you'd bought Safemoon after its April 20 high, the price is much more likely to have fallen. Only a very small number of investors would have been lucky enough to profit from that initial price gain -- and many of those probably had some connection to the project. The chances of another dramatic price jump are extremely slim.

3. You're investing money you need

All cryptocurrency investments carry risk because there's so much we don't know about how this industry will develop. Some may see huge gains, but there's also the potential for heavy losses. A number of cryptocurrencies will certainly fail altogether -- and some believe the bottom could fall out of the whole industry.

If you want to invest in cryptocurrencies, especially risky ones like Safemoon, you need to be comfortable with the possibility you'll lose everything. So don't buy Safemoon with money that you've earmarked for your emergency fund or you need to pay the rent.

4. You're following a celebrity endorsement

Every new cryptocurrency wants a celebrity. It's an unsurprising consequence of what's been dubbed the "Musk effect" -- the way the billionaire's tweets push up the price of his pet Dogecoin.

Here are some of the celebrities talking about Safemoon:

• Barstool Sports founder Dave Portnoy has posted several pro Safemoon tweets. If you need a reason not to follow these blindly, it's that in one he freely admits, "I have no idea how this works."
• YouTube star Jake Paul has tweeted about several cryptos, including Safemoon.
• YouTuber and influencer Daniel Keem, or Keemstar, said he loves the roadmap and that this, "Feels like the start of something huge."

There are two reasons to be cautious about these types of endorsements. First, some messages from other celebrities were deleted shortly after posting, which makes you wonder what's going on behind the scenes. Also, some celebrities get paid for crypto endorsements.

It isn't clear whether Safemoon paid the celebs above -- there's no indication of that on the tweets. But buying on the back of these social media promotions is never a good idea. Especially if the endorser admits they don't know what they're doing.

5. You're attracted by the low price

At $0.0000029 (today's price), you could buy over 34 million Safemoon tokens for $100. The reasoning goes: What if Safemoon follows the path of Bitcoin or Dogecoin? You could be sitting on a fortune if Safemoon ever hits a dollar.

But this logic doesn't take into account the fact that there are 777 trillion Safecoin tokens in circulation. That means it's highly unlikely it will hit a dollar. It would be like saying 500 grams of something is more valuable than 5 kilograms because 500 is a bigger number.

The question is not how many coins can I buy for $100, but instead: How much will my $100 increase in value if I buy this coin? If you bought $100 worth of Ethereum -- a coin with a huge team and a clear function -- would you be more confident your investment would increase in value in the long term?

Or, to put it another way, with so many incredible coins on the market that promise to solve real-world problems, does it make sense to gamble your money on one that raises so many red flags?