The Pump and Dump Scheme

When the popularity of cryptocurrency rises, so does the prevalence of fraud. On most days, the market sees low trading rates, with volume and price spikes occurring on rare occasions. But are these price increases real or the product of pump-and-dump schemes?

Pump and dump scheme

A pump and dump scheme is when a group of people uses false and misleading information to falsely inflate the price of an asset. In other words, they can purchase a commodity in bulk at a low price, causing the price to increase. Unwitting traders would jump in and buy the commodity, hoping to benefit from the bull market. The properties are then sold (dumped) by the original buyers to make a fast profit. Many consumers suffer major losses as a result of this change in supply and demand.

Pump and dump schemes: how it works

 A community of key organizers is at the center of all pump and dump schemes. These organizers encourage others to join their scheme. Social networking and messaging channels like Telegram are often used to facilitate pump and dump schemes.

Pump and dump operators choose a coin and an exchange to strike. The aim is to increase the amount of the chosen coins. The optimal goal would have a low volume, allowing schemers to lock up as much liquidity as possible. As a result, the con artists would be able to set the price when selling their newly obtained coins.

Although pump and dump schemes can tend to be lucrative, the core organizers are typically the ones who profit the most. This is due to the fact that they are aware of when the pump will be activated. Anyone else involved would most likely be ranked and receive a 'tip' based on their position. The reality is that you will lose money, particularly if you are at the bottom of the rankings.

FOMO

A pump and dump scheme may generally be defined by the way it is marketed. Usually, social media advertisements would encourage the event by promising immediate benefit. It seems to be too good to be true, and it typically is.

Bitcoin has risen to new highs since it first became popular, reaching a new high in 2017. Many people felt as though they had been left out. This sensation is known as 'FOMO,' or 'fear of missing out,' or 'fear of missing out on an opportunity.' Many pump and dump schemes would provide a compelling explanation for the event in order to entice people who are afraid of losing out on the prize.

Allowing yourself to succumb to FOMO is one way to stop being a target of a pump and dump scheme. Market analysis and an awareness of current trends can underpin any investment decisions you make. Keeping up with the latest news will help you stay ahead of the curve and recognise possible pump and dump schemes.

Signs to be aware of

There are a few red flags that suggest a scheme may be a pump-and-dump scheme.

Check to see if the corporation or promoter has been suspended by the US Securities and Exchange Commission recently (SEC). But don't just stop at the first business or promoter. Investigate further to see if the company's CEO/promoter has been suspended at a previous time.

Do not buy if the value of an asset increases at the same time as promotional activity takes place. If the price of an asset unexpectedly soars and seems rare, it most certainly is.

It's possible that press releases or advertisements will promote activities that don't take place. This is a sign of deceit prior to a plan.

Check to see if the company/promoter is currently in operation. If they don't, they're almost certainly bad news.

Avoid doing business with a company/promoter that has a large number of shares without a corresponding increase in assets.

If a company/promoter regularly changes its name, management, or form of business, this is a bad sign.