Trading Lessons

The Danger of Rug Pulls in Crypto

With the recent rug pull of the project 0xEncrypt, this is a great time to talk about the danger of believing the hype with any of these crypto projects, and why you never want to go all in on any one coin.

I actually owned a few Eth worth of 0xEncrypt weeks ago when everything related to AI or had “0x” in their name was just popping off as sympathy plays.

I sold it a few weeks back because I didn’t like the price action and wanted to consolidate some of my funds, so luckily, I avoided getting caught up in this rug. 

Unfortunately, many weren’t so lucky.

What’s makes this one so crazy is that this project actually seemed pretty legit. I actually felt like it had a decent chance of being a runner in the next bull market. 

But as we’ve learned before, you can never fully trust any of these crypto projects. 99% of these things will always be vaporware, and they can all go to zero. The only two exceptions, in my opinion, are Bitcoin and Ethereum.

If those two coins go to zero… then it’s actually just over.

The prevalence of rug pulls and dogshit “spike then die” coins is why it’s so crucial to be mindful of position sizing, and make sure you are only investing an amount of money in each project that you would be ok with losing entirely. 

For example, with all these uniswap coins I’ve been playing I generally invest between .5 and 1 full Eth into each one.

If the coin goes to zero and I lose that entire investment then sure, I’ll be bummed. However, my portfolio and my sanity will both survive that drawdown just fine. If the price action is good, I may add to winners on retests of support. 

That is where you want to be at. 

If I was just getting started, and had $2000 to start investing (just as an example) then I wouldn’t put more than $300 into any one coin. I would try to relentlessly flip 2-3x profits and just compound my gains.

The bigger my war chest got, the larger positions I would take in each coin.

This will avoid catastrophe if you get caught up in a rug pull or two.

Of course, you’ll daydream about the monster gains you could have had if “you had only went all in on that winning coin”, but hindsight is 20/20.

If you try to play that “all in” strategy in this crypto game, you’ll be left with 0$ sooner than you think.

Never risk the complete destruction of your portfolio on one or two coins.

That’s really all there is to say for this post. I just want to drive the message home to not buy into the hype and think your shitcoin is the next Ethereum… because it’s not.

Will blockchain change the world and eventually be integrated into every part of your daily life? 

Yes, absolutely.

But “FrogFartcoinInu” probably isn’t going to be a part of that new paradigm. Amazon is not going to be using “CumRocket” to process transactions.

99% of these coins are good for one thing, and that’s growing your net worth by riding the hype and flipping before it dies. 

I’ll write another post in the future about what I plan to hold for the long term, but that pretty much wraps it up for this topic.

Stay safe out there in crypto land.

Until next time,

Fractal

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