Rug Pulls and Riches: The Reality of Crypto Trading
- Money Dox
- Jul 21
- 4 min read
Discover the dual world of crypto trading: huge gains and hidden risks. Learn how rug pulls work, manage risks smartly, and trade safely with expert insights.
1. Introduction
Cryptocurrency trading is now widely recognized as a mainstream activity, having risen from a marginal pastime to a global phenomenon. The rise of the crypto market cap from below $20 billion in 2017 to over $2 trillion at its peak in no more than a decade could certainly attract millions of investors who would invest time and energy in chasing after the next big return.
However, there have been millionaires who turned out with millions but lost on the other side of the coin, lives and fortunes changed by many, as well as people who got ruined entirely through scams and extreme market volatility. One such evil, however, that has managed to sour the palatably sweet DeFi boom is an event referred to as rug pulls- malicious exit scams.
Thesis: The crytpo-currencies have opened real chances for real wealth, but following rug pulls, there are pathways full of potential dangers, and wise strategies need to be adopted to save capitals.
2. Understanding Crypto Trading
What Is Crypto Trading?
Crypto trading is a type of trade involving the buying and selling of digital currencies, such as Bitcoin (BTC) or Ethereum (ETH), on a centralized exchange (CEX) or a decentralized exchange (DEX). Traders who wanted to take advantage of the price fluctuations would usually engage in the following trades:
Spot Trading: Buying and selling coins right away.
Futures and Margin Trading: Leverage on price movement.
DeFi Swaps & Yield Farming: Token exchanging and income generation.
Key Markets and Platforms
Centralized Exchanges: Binance, Coinbase, Kraken.
Decentralized Exchanges: Uniswap, SushiSwap, PancakeSwap.
Top Tokens by Market Capitalization:
Bitcoin (BTC)
Ethereum (ETH)
Binance Coin (BNB)
Tether (USDT)
Why Traders Will Come
High Returns: with speculative altcoins of 10× to 100× possible gains.
24/7 Markets: No trading breaks; change prices at any moment.
Decentralization: No middleman, resistant to censorship.
FOMO: Currently, herd behaviour is cultivated by viral memecoins.
3. What is a Rug pull?
Rug Pulling Defined
A rug pull refers to a common type of crypto scam where the project developers walk away from a token and run off with money invested by the investors. It's as if someone has pulled a carpet under someone's feet; liquidity dries up, and token value collapses.
Types of Rug Pulls
Hard Rug Pull: Developers drain liquidity or all in such a manner that no buying or selling can take place.
Soft Rug Pull: Team drains part of the funds over time (e.g., via disguised "team sales").
Common Mechanics
Token Launch & Hype: Aggressive Marketing and Influencer Promotions.
Liquidity Lock/Unlock: Liquidity is on paper locked up, but can be unlocked by the team.
Exit Scam: A team pulls liquidity, and holders are left with worthless tokens.
Famous Examples
Squid Game Token (2021): From a pretend play-to-earn game; code could enable devs to mint an unlimited number of tokens and take $3.4 million (↘️ price to $0)
Meerkat Finance (2021): Claimed audited contracts; dev drained $31 million in BNB in just hours.
4. Anatomy of a Rug Pull
Red Flags & Warning Signs
Psychological Traps
Greed: High-yield promises prey upon desire for rapid wealth.
Urgency: "Limited spots" or "Presale soon ending" gives a rush to decision making.
Community Hype: Telegram/Discord echo chambers amplify FOMO.
Statistic: Over 37% of all DeFi hacks and scams in 2021 were rug pulls, accounting for $1.3 billion of losses worldwide.¹
5. The Stories of Sudden Riches
Early Adopters Who Struck Gold
Bitcoin Millionaires: Early holders of 100 BTC in 2010 (worth $0.10 each) now control holdings greater than $5 million.
Ethereum Whales: Generate ETH in 2015 for $0.30; that price today is over $2,000.
Meme Coin Miracles
Dogecoin (DOGE): Its cost rose from $0.0002 in 2014 to $0.70 in 2021, producing a 350,000-fold profit for early investors.
Shiba Inu (SHIB): 100,000 times, some presale buyers have made profits.
Case Study: Alex Pretzer is well-known for turning $1,000 into $6 million by catching the timing of a flash crash, but many lose more when emotions take over.
6. The Emotional Rollercoaster of Crypto Trading
Psychological Effects
Euphoria: Winning trades trigger a strong dopamine rush.
Despair: Price drops suddenly lower lead to panic sell-off.
Addiction: Repetitive trading compounds stress and burnout.
What Role does Social Media Play?
Twitter & Telegram: The news of breaking pump-and-dump signals.
Reddit (r/CryptoCurrency): Crowdsourced due diligence vs. mob mentality.
TikTok & YouTube Influencers: Paid promotions might bury a conflict of interest.
Example: A hungry viral TikTok of 2021 sent a low-market-cap altcoin up 300%, and then by 90% dropped it all in the next 48 hours.
7. Preemptive Steps against Risks and Smart Trading
Core Principles
Diversification: Avoid more than 5–10% of portfolios for single tokens.
Risk Tolerance: Set the maximum possible drawdown you can bear (e.g., 20 %).
Stop-Loss & Take-Profit: Automated sell limits loss/gains.
Due Diligence Checklist
Whitepaper: Transparent roadmap, sensible targets.
Review Tokenomics: Full supply, distribution schedule, and vesting periods.
Verification of the Team: LinkedIn profile, GitHub commits.
Audit Reports: Look for CertiK, PeckShield, or Trail of Bits certifications.
Community Feedback: Developer AMA transcripts, GitHub issues.
Statistic: Audited smart contracts are hacked 60% less than non-audited tokens.
8. Regulation and the Future of Crypto Trading
Global Development
U.S. SEC Guidelines: Tokens classed as securities; registered under the act.
EU's MiCA Regulation: Comprehensive rules on stablecoins and the service providers.
Asia Pacific: Singapore's MAS is for compliant innovation, prohibiting exchange with China.
Possible Upsides & Downsides
Pros: Consumer protection, fewer scams, inflow.
Cons: Over-regulation kills innovation; costs incurred for compliance.
Emerging Trends
AI-based Analytics: On-chain risk models flag malicious contracts.
NFT Evolution: More than art assets of the real world tokenization.
Layer-2 Scaling: Faster, cheaper transactions on Arbitrum, Optimism.
Green DeFi Sustainable: Environmentally friendly provisions that use proof-of-stake networks.
9. Conclusion
Crypto trading can be described as a high-return, high-risk field. While there are rug pulls and extreme volatility that can wipe out accounts, disciplined traders act on knowledge and sound risk management and can prosper. By remaining alert—seeing the warning signs, practicing diversification, and verifying projects—investors can sway the odds.
10. Call to Action
Prepared to master safe crypto strategies? Read our extensive Crypto Trading 101 guide and sign up for our course with an expert. Stay in-the-know, trade smartly, and never invest anything you cannot afford to lose.
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