A rug pull is crypto bro slang for the moment in a crypto pump and dump scam where the scammers dump their shitcoins, thus running away with their hapless marks’ money. Being a victim of a rug pull, logically, means you’ve just been rugged.
As I explained in a recent article, all crypto taken together – from Bitcoin and Ethereum down to the silliest meme shitcoin – are more than just a straightforward pump and dump. They actually represent a massive Ponzi-like con – where the only difference between crypto and a true Ponzi is the scammers’ distributed nature.
Like all other Ponzi-like cons, there is one incontrovertible truth: all Ponzi-like cons collapse as soon as incoming funds are insufficient for paying out earlier ‘investors.’
It’s not a matter of if. It’s just a matter of when. And when crypto collapses, were going to see the rug pull to end all rug pulls, what I like to call the #megarug.
What will Trigger the Megarug?
As long as there are a sufficient number of greater fools willing to put their real money into the crypto money pit, the crypto long con lives to breathe another day.
Given the astonishing acceptance of crypto (especially Bitcoin) around the world, there’s no question the megarug will put all the tulip frenzies of the past to shame.
One of the main reasons crypto has shown such remarkable longevity is because the whales (large holders, particularly of Bitcoin) and the stablecoins (namely Tether) have worked out a way to artificially inflate the value of crypto. Meanwhile, ongoing volatility is how the whales cash out a portion of their stash for real money without knocking down this precarious house of cards.
In other words, the whales are playing a massive game of chicken with each other, each one counting on the others not to pull the rug. As long as they all play ball and the suckers keep ‘investing,’ the con will continue.
Until, of course, one of the whales flinches.
Nobody knows what will push this whale over the edge. One guess: it might be the exposure of the identity of Bitcoin’s mysterious creator, Satoshi Nakamoto. Nakamoto retains billions of dollars of Bitcoin, which they have never once moved or sold. If they try to cash some of those billions out, that could easily precipitate the megarug.
The Megarug Play by Play
Here’s how I foresee the megarug playing out.
A small number of whales suddenly cash out, causing the rest of the whales to freak out as they make a mad rush to unload their crypto.
As a result, the market value of Bitcoin drops perhaps 90%, as the whale/Tether scam to artificially inflate the value of crypto collapses.
This drop in the price of Bitcoin causes a run on all other cryptos as recent (non-hodler) speculators try to cover their bets. Many hodlers, for the time being, continue to hodl.
The backers of Tether and other stablecoins cut and run, taking what real-money reserves they have salted away (assuming any) and pocketing them. Exchanges quickly drop their support for stablecoins.
All crypto ‘investors’ (including hodlers) who have somehow leveraged their stakes or purchased crypto derivatives lose their crypto, as every firm that provides such leverage or derivatives suddenly shuts their doors (retaining any private keys their customers have foolishly entrusted them with).
At that point, all the exchanges lock up, refusing to redeem crypto for real money.
Short sellers who have bet on the value of one crypto or another going down attempt to cash in. The way shorts work is the short sellers have previously borrowed and sold crypto. Now that the price has dropped, they can buy it at the lower price and return the crypto to its owners, pocketing the difference.
Cashing out shorts in this way puts a small amount of real money back into crypto (raising the price a little) — until the shorters realize their remaining positions are worthless.
Given the fact that there’s no longer a practical way to exchange crypto for real money, its price drops another 90%. At that point, Bitcoin and the other proof-of-work cryptos fall below the mining threshold, where miners can’t cash out enough earned crypto to cover their costs. At that point, most miners shut down.
The only miners that remain are ones that directly support dark web contraband transactions and thus are willing to mine at a loss. But this reprieve is short-lived, as dark web criminals find that their customers are unable to use exchanges to purchase the crypto they need to buy contraband on the dark web.
Finally, hodlers realize they have to bail, but there’s no real money available to cash out to. Much wailing and hair-pulling ensues.
Secondary Megarug Effects
The collapse of crypto rugs more than the people directly involved in crypto speculation. Like ripples in a pond, the megarug extends its obliteration.
The entire nascent crypto-based financial industry crashes, leading to ‘rich’ people not being so ‘rich’ anymore.
El Salvador and other ‘cheat the poor’ government crypto efforts crash, leading to economic collapse in such countries. Needless to say, El Salvadorians are pissed.
Not all effects are doom and gloom. On the plus side, all ransomware attacks stop, and the dark web collapses. People will just have to get their fentanyl and child porn somewhere else.
Any business model with even a hint of association with crypto soon collapses as well. The Metaverse, Decentralized Autonomous Organizations (DAOs) including Decentralized Finance (Defi), Web 3.0, NFTs, and most blockchain business models shut their doors.
Recrimination and lawsuits reach a fever pitch, including questions of clawbacks: of the people who cashed out for real money, who must give it back? And who should get it? Such lawsuits take years to resolve.
Eventually, countries around the world outlaw crypto and related schemes, hopefully preventing another #megarug from ever occurring.
The Intellyx Take
Other than the fact that the crypto Ponzi-like long con will inevitably collapse (a fact of which I am certain), the rest of this article is speculation. Listen to me or not, it’s up to you.
Of course, crypto’s fan base won’t listen. They might retweet a link to this article to be sure, but only to add some childish and puerile comment or two.
So, why did I write this article? One reason.
Schadenfreude is a dish best served cold.
© Intellyx LLC. Intellyx publishes the Intellyx Cloud-Native Computing Poster and advises business leaders and technology vendors on their digital transformation strategies. None of the organizations mentioned in this article is an Intellyx customer. The author has never owned, nor does he intend to own, any cryptocurrency or cryptocurrency derivatives. Intellyx retains editorial control over the content of this document. Image credit: The Lamb Family.
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