If you’re in one of the many Telegram groups, you might read something about pumping or dumping coins. This is a type of scheme that is somewhat popular in the cryptocurrency trading industry but is illegal in traditional securities and bonds market.
We will let you know what this scheme is and how you can avoid it.
What is Pump and Dump?
“Pump and Dump” is a method of artificially inflating (pumping) the price of an altcoin to gain profit by selling the token during its peak price (dumping). This method is illegal in traditional securities and bonds markets but because of the lack of regulations in the cryptocurrency industry, it is still running rampant.
It is a method of artificially inflating the price of an unpopular altcoin by using fake news to hype the token. Key market players buy a significant amount of “unpopular altcoin” before pumping. These players may use social media or usually, Telegram to convey that the “altcoin” is going towards the moon or is a good investment in the long run.
What kind of altcoins do they target?
They target easily manipulated tokens with low circulating supply and a very small market cap.
Pump and Dump players usually operate in large groups and after targeting an altcoin, they will purchase a large number of tokens all at the same time. This will make the price of the token to artificially inflate.
During this time, the “fake hype” has already caught a lot of investors not included in the “pump and dump group” and are also buying the coin during its peak. Other small investors will also buy the coin because of the Fear Of Missing Out (FOMO) effect. This will increase the price further.
Dump or dumping is the synchronized selling of the pumped altcoin to the unsuspecting investors after a major “pump”. This massive dumping will cause the price of the chosen token to usually drop below its original “pre-pump” price. After dumping, the “pump and dump group” will then get their “profits” leaving other investors with an altcoin of lesser value before the pump began.
How to Avoid Pump and Dump
Before you invest, make sure to study the cryptocurrency you want to invest in. Aside from reading its whitepaper, check its stats on reputable sites such as https://coinmarketcap.com/ or https://www.cryptocompare.com/.
On the image above, we searched a less popular token that we had a tip that underwent pumping and dumping. If you’ll notice on June 9th, it went a tremendous uptrend that later on went down after the “dumping” has finished. This is the usual stat of pump and dump scams, a steady low trades to a fake price hike. Make sure to steer away to avoid getting a worthless token.
To summarize it all, pump and dump is a method of artificially inflating the price of an unpopular altcoin. Pumpers will then purchase it en masse and sell them during its peak price. Investors who are not in the “pump and dump group” who took chance with the sudden price hike will get left behind with worthless digital assets.