The news of friends starting to gain profit from crypto trading gives aspiring crypto traders the fear of missing out (FOMO) and may lead to impulsive trading or joining some random crypto pump and dump groups. What are these crypto pump and dump groups? Are they legit and legal?
Disclaimer: This is not financial advice. The aim of the article is to inform readers of the existence of crypto pump and dump groups. Practice due diligence in researching cryptocurrencies before investing in them.
What is pump and dump?
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For aspiring crypto traders, it is important to know some trading terminologies. Pump and dump are just some of the usual words used by traders. Pump is to describe the huge growth of the value of a certain cryptocurrency. While dump is the opposite of pump where the value of a certain cryptocurrency goes extremely low. Trading charts represent these movements.
How do pump and dump groups work?
Most pump and dump groups would encourage fellow traders to invest on a cryptocurrency that possibly pumps based on their fundamental and technical analysis.
Most of these groups would create hype over a very low-capped cryptocurrency to manipulate the market and when they achieve a certain number of buyers or people who invested in the said crypto. This will create an artificial pump on the cryptocurrency. In the process, those who created the pump will take advantage of the huge value and sell off their cryptocurrency and this will lead to a dump in the value.
Those who were not able to sell out their crypto on time will definitely get a lower value of the crypto and worst may lose its value because of the mass sell-off.
What are the risks of joining such groups?
The risk of joining such a group is very high. It may help aspiring traders gain bigger gains if they will not get too greedy or they will lose all or most of their investment. So, how will an aspirant trader that the group they are being invited to is legit?
How to know if it is a pump and dump scheme?
There is no exact science on how to determine if a crypto is being used in a pump and dump scheme. It is very important for aspiring investors to do their own research on the cryptocurrency before deciding on investing in it. These factors can be put into consideration in determining if it is a fraud or not: Too much hype, very high rise in the price, continuous publicity, and if the cryptocurrency is in its initial coin offering (ICO).
Too much hype. Never trust an influencer on placing “the next big thing” or “the next Bitcoin” on their thumbnails. This could be a red flag. Social media can be a tool to create a hype around a project or cryptocurrency that could lead to people getting into it without researching about it and eventually become victims of a sudden dump. Learn to get into the details before joining the bandwagon.
Very high rise in the price. When a sudden rise in the price of one cryptocurrency is evident in a very short time, it could also dump in a very short time. Especially if it is an unknown crypto or a brand new one. Like what they say, “The higher it goes, the harder it falls”. Never fall for the trap of fearing being left behind. There will always be other opportunities and better ones in the future. It takes much discipline in crypto trading because of its nature of high volatility.
Continuous publicity. Rumors of good returns on certain projects could really be good to the ears and adding to it the hype of people endorsing it online can make an illusion that it would be a good investment. Always remember to do due diligence before investing in it.
Initial coin offerings (ICOs). Notice that most cryptocurrencies start with a very sharp pump and a hard dump after its initial entry into the market. It can be tempting to invest in a brand new crypto project but make sure to know the team behind it first. Just an example, the news about “The Money Heist” token that suddenly went to the moon but afterward lost its value when the developer took all the profit with him.
It is key to always do due diligence in researching a certain project and even the pump and dump group that offers assistance to aspiring crypto traders to earn quick and bigger gains. Never trust even influencers’ opinions on certain projects but gather reliable resources before deciding on investing in any crypto.
The market is very volatile and price value will vary every minute. It is better to educate oneself on the proper way of reading charts and understanding how outside factors could influence the crypto market. Groups can be helpful if the aspiring trader knows anyone personally from the group and trusts those who run the analysis for them.
This article is published on BitPinas: What are Crypto Pump and Dump Groups?
Disclaimer: BitPinas articles and its external content are not financial advice. The team serves to deliver independent, unbiased news to provide information for Philippine-crypto and beyond.