30 March 2020
People are more interested and attracted to earning money in the easiest way, here cryptocurrency, people tend to find different methods to earn easy access and gain to earn the profits, sometimes indulging in fraud methods.
Cryptocurrency pump and dump is stated to be executed by a group of people that utilizes this method involving an artificial inflation of the cryptocurrency asset’s price with the help of false, misguided and manipulated information that being planned such as pumping meaning buying the assets that has the low value of the price leading to people in thinking that it is a possible bull market and then crashing upon basically dumping the assets suddenly to make a profit. The fluctuation in the supply and demand ends up causing the other users a significant loss but a good profit to the other group of people that uses the scheme of pump and dump.
Pump and dump are said to be one of the biggest scams and known ways of making profits in the world of Cryptocurrency.
In the study of the Wall Street Journal, they stated that the cryptocurrency pump and dump scheme had accounted for over $825 million activity in crypto-trading while a loss of hundreds of millions of dollars.
How does it work?
The core insight of the pump and dump is the group of people that brings change and execution. These organizers prompt and initiate other people to join their scheme and this method is mostly promoted through social media websites such as Telegram and Discord.
The organizers plan and select a crypto coin and an exchange that they target upon to execute their pump and dump scheme. This particular coin will have a low volume in the crypto market while they target to make this coin’s volume increase. This method creates an image amongst others- the one who is not connected to the pump and dump group that the coin is going to boast and end up investing in the crypto-trade. As soon as the crypto-price boosts and reached its target, the pump and dump organizing group starts selling these crypto-assets leading a decline in the crypto price. This causes a good amount of profit for the pump and dump group but a loss for the other investors.
How to recognize Pump and Dump?
If there is a will there’s a way, in the same manner, if there is a fraud scheme there definitely is a way to recognize it!
- If on social media, an event is advertised in a manner to earn instant and a quick profit, you should know that there could be something fishy about it.
- FOMO - The Fear Of Missing Out is one thing people in the world of cryptocurrency has, for an instant take Bitcoin, it became mainstream when it was not even expected, however, one has to let in their FOMO but also should make a detailed study and reasoning before enticing in the event.
- It is very important for one before investing to study a particular event or subject and to market research, learn the trends and news related.
- One can also examine if the promoter or the company is banned by the SEC or also determine if they were ever suspended before investing.
- The other possibility increases in the value of the crypto asset while hand in hand the activities of promotion of the same event occurs, as it gives a high possibility that it can be a pump and dump scheme.
- One should conduct thorough research of the promoter or the company before investing.
- A sudden and a massive PR of an unknown or less known cryptocurrency.
How can you save yourself?
Recognition is the first key but also you can try to save yourself from this scheme by-
- Tracking the cryptocurrency pumping with the utilization of the special monitoring services like CoinData.
- Subscribing to the pumping groups but of course not indulging in one as these groups provide information and news about the pumping before it starts.
- Using bots like YobitBot or CoinToolsBot to track the market for the pumping.
Also Read, Crypto Trading Bot - All You Need To Know
Is this pump and dump a legal scheme?
On a traditional exchange, this practice is stated to be illegal and it is strictly governed and regulated. However with cryptocurrency, as there is a lack of regulations in crypto-trading in many countries, it gives such players play their evil and unethical practices.
How to practice the pump and dump?
- One needs to study and choose the low cap asset and start accumulating tokens with time but you need to do it slowly and gradually so that not to create a premature spike in the crypto price.
- Convincing about your plan to a group of investors and asking them to hold onto buying the crypto asset until you tell them.
- Gathering people until the buying power is attained so as to manipulate the coin’s price.
- The fourth stage is wherein you’d ask your investors to buy the asset for the rise in the price.
- When it reaches the desired peak, you can sell your holdings that will create a trigger amongst others until its crash.
- The last and final step is, of course, take away your profit!
Be it for good or bad it's also the thought to give that before investing in a crypto-trade we do check the terms and conditions box of the risk factor, so it’s not someone we can solely blame on. Of course for the one who looses its bad and immoral however the one who gains it is the prominent output. A lottery, gambling is also such unethical practices but it thus is said, if there is money involved there is always a risk!