As the global cryptocurrency market is still growing at an increasing pace and attracting more investors. While there are many legal opportunities in this field, lack of regulation open the door of ill practices.
If you are aware of these ill practices, then you might be able to save yourself from scams. There are many stories of investor buying small token and gaining massive profit over the time. And there are also many stories of investor buying small token and becoming millionaire for an instance and then reduce to nothing instantly. Later is the case of pump and dump.
Many people are aware of these kind of practices. This article is aim to target new audience becoming part of cryptocurrency network especially investing/trading part (Cryptocurrency are more than trading. There are various use of crypto tokens)
Anatomy of scheme
The pump and dump scheme isn't new, as it has been in existence extensively in the equity markets for a long time. The motive behind the scam is very simple. A person or group will buy a large amount of a security or a token that is thinly traded (this aspect is very important), and by doing so, the price will increase.
As the initial buying causes a rise in price, the group behind the initial buying will begin to promote the asset, generally in informal media. As more people jump into buying, the price will rise further, and people will tend to get excited about the prospect of further gains.
The entity that was behind the initial buying and publicity push is now ready to cash out their holdings at a much higher price level, and lock in some big gains. Anyone who has come to the market late in the cycle will be stuck with the asset and no more buyers, which is the end of the scheme.
In general, once the initial buyer who began the scheme exists the markets, and the publicity campaign wanes, the prices will fall, and anyone who holds the shares or tokens will see big losses. That, in short, is the pump and dump scheme.
Realistically, there is more to these schemes, and anyone who is dealing with inexpensive, thinly-traded assets needs to know what to look for when buying into a rally, or a hot, new investment thesis.
So what to buy and what to not
If you are trading on the small side of the crypto markets, there are some things that are very important to keep in mind.
Do some research
The biggest problems of many investors have are emotions, and the greed to make large gains quickly. It is these motivations that a pump and dump scam operator exploit, and it is hard not to put some amount of responsibility to the victim of these operations.
Conclusion
Nowadays, improvement in technology has encouraged these schemes. They are all over the market, and fraudsters keep inventing ways to get to your pocket. Therefore, you should avoid being the victim of such scams by integrating some practices. Carry out your analysis of the situation and ensure the investment is worth it. Research everything you need to know about this false information to stay alert. Beware of the internet, especially social media, as fraudsters can reach you quickly.