The cryptocurrency pump-and-dump schemes have gained a lot of attention. The crypto pump and dump scheme refer to the process when the investors take advantage of an asset with a price increase which is followed by a price fall. These schemes happen with all kinds of assets including cryptocurrency.
Pump-and-dump in cryptocurrency happens when a group of investors convinces other investors to purchase a certain cryptocurrency. This drives the prices up further. The original investors than “dump” their holdings which leads to a crash. The investors that came later face heavy losses.
In this guide, we will outline what the cryptocurrency pump and dump are all about.
First, find out how cryptocurrency trading works?
What is pump and dump?
Crypto pump-and-dump involves two phases: the pump and the dump. In the pump scheme, the price of an asset goes up. The second phase is the dump. In this phase, the mass selloff makes the prices down.
Phase One: The Pump
In the pump phase, a group of investors convinces the new investors to buy the coin. They hype the coin up and spread false information about it.
They make fake promises like “Buy this crypto and you can make millions per month. They often promote the coins by saying that the price of this coin will go up from $0.01 to $1.00. They market the coin as unique and special! Many promotional strategies also include memes that feature rocket ships heading to the moon.
The investors who are spreading this misinformation hold a large portion of the coins. In many cases, the developers of the project spread these false claims to start a cryptocurrency pump-and-dump.
Phase Two: The Dump
When most crypto holders are convinced and purchase the new token, the second phase of the dump begins.
The new investors wait for the price to rise and this is when the original investors start to sell their tokens. This makes the price of the coins fall down. As a result, the investors who get in late have to face heavy losses.
What is pump and dump in pop culture?
Crypto pump-and-dump is taking advantage of the younger generation. The crypto pop culture has created a lot of hype over cryptocurrency coins. The younger generation is showing a lot of interest in digital currency. Young adults also want to become wealthy and this has given a rise to the crypto pump and dump schemes. The scammers have been making big money by the pump and dump scheme.
Social media influencers have received a lot of financial incentives to convince people to buy a certain digital coin. This helps to raise the value of the coin. When the value of the coin goes up, the scammers and the social media influencers get the chance to profit from the coins. They sell their coins and grab all the profits. The new investors have to face a lot of losses.
Recently a group of sellers began selling coins that were based on the hit Netflix show, Squid Game. The $SQUID coin had no relation with the coin show but the hype around the coin made it successful. The value of the coin went up from a penny to $2,800. It fell back to pennies a few minutes later. The scammer managed to make around $2 million while people who purchased the coin lost money.
The ever-changing story of cryptocurrencies in pop culture has made many young adults interested in crypto pumps and dump schemes. Cryptocurrencies have become easy to develop, and this is why scammers have been taking advantage of innocent people who want to make more money. The cryptocurrency pump and dump are gaining a lot of attention because many people get scammed in the hope of getting rich.
Is it profitable to participate in such an operation?
Many people have gained a lot of profits by participating in the crypto pump and dump schemes. The crypto pump-and-dump is coming with no limit. You can create as many coins as you want. It has become profitable for many scammers to participate in pump and dump schemes these days.
Celebrity endorsements and memes help to increase the value of certain coins. At the beginning of 2021, DOGE became the top 10 cryptos in a few months. It was previously traded at a fraction of a penny. The cost of the coin rose to $0.70 and then tanked to$ 0.20.
In 2021 members of the FaZe Clan started a pump-and-dump for SaveTheChildren. The pro gamers, with some other influencers, promoted the coin to the followers. The price increased, and they started to sell off the tokens. Some of them made an estimated $30,000.
Another coin SafeTrade was promoted this year. The organizers sold their coins and left all the new investors in the dust. The organizers of the pump and dump scams have made millions in the past few years.
What are the risks?
Taking part in the pump-and-dump scheme can be one of the most high-risk endeavors that an investor can take. The big-sized gains can be a fantasy.
When you plan to invest in altcoins, you can fall prey to a crypto pump-and-dump scheme. The values of coins’ decline 90% from their peaks and they never recover. Many altcoins prices can be manipulated at any time.
Bitcoin scams are hard to pull off because a successful pump and dump will require an asset that has thin liquidity. This makes it easier to make the big price moves. It is possible to fall prey to market manipulation in any kind of financial market.
Crypto pump-and-dumps is when a group of investors drive up the price of a coin and then drive the price back down. This is not illegal yet, but some movements in making it illegal have been made. It is important to consider that participating in a pump and dump scheme might be the riskiest move taken by an investor.
Countless people have fallen victim to crypto pump-and-dumps. There is no way that you can predict a pump-and-dump, but there are still a few red flags that you should watch out for.
Find out how does pump and dump work?