What you need to know about degen trading in crypto
There are dozens of different strategies and styles in cryptocurrency trading. Most of them are based on careful analysis aimed at achieving stable results.
However, there are also trading strategies in which impulsiveness dominates over "cold" analysis. One of them is degen trading in cryptocurrencies.
What is degen trading in crypto?
Degen trading is a style in which a trader seeks to profit as quickly as possible, taking on extremely high risks and making impulsive decisions.
The term "degen" comes from the English word "degenerate." In the cryptocurrency industry, the term "degenerate" describes participants whose market behavior is excessively risky. In other words, in degen trading in cryptocurrencies, users are willing to go "all in," risking too much.
The phenomenon of degen trading in cryptocurrencies emerged due to market oversaturation with speculative assets that have extremely high volatility, such as memecoins.
Such cryptocurrencies require rapid trading decisions. Because of this, almost any trading involving such speculative assets becomes degen trading, which most often results in significant losses for investors.
At the same time, degen trading in cryptocurrencies is not inherently a negative phenomenon but rather reflects the preferences of specific traders: some users prefer careful analysis, while others value decision-making speed more.
For example, new tokens launched in liquidity pools on decentralized exchanges can change in price by hundreds or even thousands of percent within just hours or minutes. This makes degen trading in cryptocurrencies, on the one hand, extremely risky, but on the other hand, highly profitable.
Even with a small capital of $100, a trader may earn thousands or even tens of thousands of dollars in profit from a single trade thanks to degen trading in crypto.
A striking example of why degenerate trading in crypto attracts users is the story of the wallet Sundayfunday.sol: according to Binance Square, in May 2024, it turned about $2,275 into $2.26 million within 8 hours on the memecoin 1DOL. However, such cases are exceptions and do not eliminate the high risk of completely losing one's capital.
Main characteristics of degen trading in crypto
Degen trading in cryptocurrencies is characterized by several key behavioral traits among traders:
- A desire to achieve quick profits.
- Lack of or minimal risk assessment.
- Reduced time spent analyzing an asset and verifying facts.
Another characteristic feature of degen trading in cryptocurrencies is the focus on short-term price impulses and the actions of "whales" — large cryptocurrency holders. Some traders monitor the movements of large wallets and copy trades in hopes of quickly profiting from the rise in a token's value.
In some cases, a sign of degen trading in crypto may be the desire to "win back" losses after failures. This strongly resembles the Martingale method* used in gambling.
* The Martingale method is a betting or capital management strategy in which, after every loss, the size of the next bet or trade is increased, usually doubled, so that the first successful attempt compensates for all previous losses and generates profit. The method is widely known in gambling and high-risk trading, but during a long losing streak, it can quickly lead to the loss of all capital.
This approach to degen trading in crypto is based on a common cognitive bias that causes traders to assume that the more unsuccessful attempts there have been, the lower the probability of losing funds the next time.
Among beginners, the reasons for degen trading in crypto may include success stories of traders who invested successfully in some hyped memecoin and earned hundreds of thousands or even millions of dollars, as well as FOMO (fear of missing out).
Many participants in degen trading in crypto even use special trading bots to automatically purchase new tokens immediately after liquidity appears on decentralized exchanges. Such tools are especially used on the Solana and Ethereum networks due to intense competition for early entry into memecoins.
Risks of degen trading in cryptocurrencies
Degen trading in cryptocurrencies is highly impulsive and poorly thought out, resembling gambling more than a strategy. On the one hand, a trader may "hit the jackpot" and multiply their capital many times over in a single move. On the other hand, if the outcome of degen trading is unsuccessful, a participant may suddenly end up with nothing.
According to experts, the desire for quick results is one of the main reasons for losses among many market participants engaging in degen trading.
An additional risk of degen trading in cryptocurrencies is the active use of leverage. On some crypto exchanges, users can access leverage of 50x–100x, meaning that even a small price movement against a position can result in the immediate liquidation of the deposit.
In addition, due to rapid decision-making in degen trading in crypto combined with weak fact-checking, the risk of scams also increases.
Particularly dangerous for participants in degen trading in crypto is the rug pull scheme — a situation in which project creators withdraw liquidity or disappear with investors' money. Chainalysis noted that in 2021, rug pull schemes generated more than $2.8 billion for fraudsters and became one of the key threats in the DeFi sector.
One of the most famous examples of such a scam in degen trading in crypto was the Squid Coin token, which attracted traders in 2021 due to its stylistic connection with the popular South Korean series "Squid Game." As a result of the buying frenzy, the asset's value increased by more than 40,000%. However, after purchasing the Squid Coin token, many investors discovered they could not sell it.