How Crypto Beginners Can Identify Early Signs of a Rug Pull

And speaking of wild swings, if you’ve ever searched for the Bitcoin price to see what the coin’s doing, you already know how dramatic crypto can be. Those movements, whether up or down, pull in crowds and, unfortunately, scam artists. Before you know it, you’re chasing a 300 percent pump without checking whether the pool holding that token’s liquidity is lock-boxed or about to get drained. That’s where understanding early warning signs matters.

Why Crypto Ownership Is on the Rise

Crypto isn’t a fringe hobby anymore. Surveys and regulatory research show ownership climbing steadily across regions. In the United Kingdom, roughly 12 percent of adults now own crypto, up from 10 percent a couple of years ago, with average holdings also increasing. Global data indicates that the number of people holding digital assets climbed significantly into 2025, with broader demographics—across age, income, and geography—getting involved.

At the same time, large institutional players and traditional finance advisors are expanding access to crypto products, a sign that ownership is entering mainstream portfolios. As Binance CEO Richard Teng put it: “Global adoption often starts with a single domino. Now that crypto is being recognized as a legitimate financial instrument within one of the world’s largest retirement systems, the question is no longer what – but when.”

Of course, with ownership up, the total addressable audience for scams like rug pulls is bigger than ever, making it even more important to differentiate promising projects from traps.

Crypto Is Changing the Way Money Works

Binance co-founder Yi He said, “Crypto isn’t just the future of finance – it’s already reshaping the system, one day at a time.” And it’s true that crypto is catalysing how money moves. Decentralized networks and tokens offer settlement without traditional intermediaries, and stablecoins and tokenized instruments are increasingly used for payments, treasury operations, and cross-border transfers. These changes pressure traditional finance models and have led to experiments in central bank digital currencies, tokenized securities, and new forms of exchange infrastructure.

Importantly, that innovation is part of why scams flourish: novel mechanisms often outpace investor understanding. Rug pulls rarely happen in the traditional financial world because regulated issuers can’t just vanish with client funds. Crypto’s permission-less nature means anyone can deploy a token and a liquidity pool. That’s both liberating and, yes, potentially dangerous if you’re not armed with a plan to spot trouble early.

What a Rug Pull Actually Looks Like

Rug pulls occur when project developers or insiders withdraw liquidity or otherwise manipulate a token’s state so that holders can no longer sell without massive loss. Researchers categorize rug pulls into types: contract-related, where malicious code enables stealthy theft, and transaction-related, where liquidity is drained through trades without explicit malicious functions.

Here are real, practical ways to spot trouble before it pulls your rug out from under you.

Early Signs You Might Be Looking at a Rug Pull

1. Liquidity Isn’t Locked (or You Can’t Verify It)

One of the most solid indicators of a potential rug is liquidity that isn’t locked in a time-locked contract. Legit developers will lock the majority of liquidity for months or years; bad actors won’t. If you can’t find evidence of locked liquidity—or the provided proof can’t be independently verified—consider that a red flag.

Actionable tip: Before you buy, ask for proof of a lock via the project’s chat group or from someone with development experience.

2. Anonymous or Obscure Teams

No LinkedIn, no GitHub, no verifiable history. That’s a major alarm bell. Legit teams usually come with track records you can check; rug pull developers prefer to remain shadows because accountability doesn’t suit scammers.

Actionable tip: Do a quick search of team members. If you get nothing substantial, proceed cautiously.

3. Token Distribution Is Concentrated

A token where a tiny handful of wallets hold the bulk of supply is risky. If a few wallets control, say, 50 percent of the supply, those whales could theoretically sell and crash the price overnight. Community posts frequently point out that large holder dominance correlates with future liquidity withdrawals.

Actionable tip: Put the contract address into a block explorer and check top holders before you commit.

4. Unrealistic ROI Promises

If the project promises four-figure returns with zero risk and zero product, treat that like radioactive waste. It shouldn’t be part of a sensible investment thesis. Redditors and community analysts consistently highlight guaranteed astronomical returns as a key scam feature.

Actionable tip: If marketing sounds too good to be true, it probably is.

5. Large and Sudden Price Movements Without Volume Support

It’s tempting to chase a token that rockets from $0.0001 to $0.001 in hours. But if the volume doesn’t back up that move or if the pool liquidity shrinks just as the price pumps, it’s a classic rug setup. Machine learning research into decentralized exchanges shows that sudden drops in Total Value Locked (TVL) or idle markets often align with rug pull definitions.

Actionable tip: Watch for heavy imbalance between price action and trading volume.

6. Copy-Pasted or Plagiarized Content

If a project site has generic copy or boilerplate whitepapers, take it as a giveaway for low legitimacy. Scammers often reuse templates because they’re low effort and high-volume. Community warnings on social platforms frequently mention this as a common trait.

Actionable tip: Run questionable text through a search engine to see if it’s duplicated elsewhere.

7. Rapid Token Lifecycle

In academic datasets on historical rug pulls, many frauds were active for less than six months before collapsing. This suggests a planned exit rather than organic growth.

Actionable tip: Projects with very short histories and no clear roadmap are riskier.

Winning the Rug Pull Arms Race

You can identify rug pulls by applying disciplined checks that reveal hidden risks before you lock in capital. The crypto world’s wild growth means more opportunities, but also more scams riding shotgun. Knowledge is your best defence: verify liquidity locks, dig into token distributions, check team credentials, and evaluate market signals like volume and volatility. The more you treat detection like a checklist task rather than a gut feeling, the less likely you are to end up holding the bag.

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This is a sponsored article. Opinions expressed are solely those of the sponsor and readers should conduct their own due diligence before taking any action based on information presented in this article.