Pump and Dump

Pump and dump strategies are all the rage in the microcap stock market, and they're now making their way through the cryptocurrency world. These schemes are extremely dangerous, despite the fact that they offer an excellent way to make fast money. New crypto investors have no knowledge of these schemes and are often duped.

Trading in cryptos is still dangerous, so knowing what to do and how to avoid it is beneficial. We'll look into the specifics of cryptocurrency pump and dump schemes throughout this post. What exactly are they? How do they function?

Pump and Dump Scheme

Buying a low-market-cap commodity and later inflating its price is known as a pump and dump scheme. Typically, investors falsely inflate the price of a crypto asset and sell it to unwitting investors just before the asset crashes. Inexperienced traders are also drawn to these schemes by the prospect of high returns. Once the crypto asset crashes, as expected by the pump and dump party, these traders are left counting their losses.

These schemes are becoming increasingly popular with crypto assets, despite being very common in small and micro-cap stocks. These investors are interested in a number of small-scale crypto ventures. These con artists typically get away with it because there are no clear crypto regulations.

How it works

The scamming traders are normally the main players in pump and dump schemes. This community of investors is usually well-coordinated and uses encrypted channels like Discord and Telegram to communicate. The con artists then scour the cryptocurrency market for a low-market-cap commodity and an exchange to use in their scheme.

These investors typically look for a coin with low volume and trades on a small exchange while looking for the perfect coin. Scammers can more easily monitor the coin's supply and liquidity in the crypto market thanks to these characteristics. The price of such an asset can also be determined by the investors.

The investors would then purchase the coin, creating a sensation about the new currency in the city. These buyers, also known as whales, will use social media sites to pitch the latest coin's concept to unwitting newcomers. Once they have a significant amount of the cryptocurrency, they attract new buyers, who in turn drive up the price of the coin by triggering a buying frenzy.

As the buzz around the coin grows, the coin's value rises and the trading volume rises. This rise in price signals the start of the pumping era, in which investors try to attract as many new investors as possible in order to raise the coin's price to a pre-determined level.

Whales normally set a target price for the coin, and when it reaches that price, they sell their assets, causing the price to fall. When the coin reaches a high point, some players will begin selling their coins, indicating the start of the dumping time. Dumping can take anything from a few seconds to several hours. The players' main goal is to sell small quantities of coins as soon as possible without dragging the price down until all of them are gone.

When the players have left, a panic sale begins. Since these investors control the majority of the asset's volume, once they all sell their cryptos, the price begins to fall. Panic sellers are now discovering that their sell orders aren't being filled, so they'll sell below market value to get out, potentially causing the coin's value to plummet. The dumped properties, which are of little value to new investors, are left in the hands of new investors.

While the players stand to benefit the most, other investors will profit from the pump and dump schemes as well, thanks to their money and experience. Buying a coin that is ready for a pump and dump, keeping an eye out for early signs of dumping, and selling your assets early enough to benefit is a fast way to make some money.

Even if a coin is still in the early stages of a dump, it can still gain you money. However, this is a high-risk gamble that can pay off if you enter and leave the market quickly enough.

Conclusion

Cryptocurrency pump and dumps, when done correctly, can be a goldmine for a crypto trader. All investors need to do is have the right plans in place, keep an eye out for any shifts, and, of course, a little luck.

Investing your entire portfolio in a pump and dump system, as we previously said, is not a wise investment decision. Before you decide to plunge into the risky trade, make sure you conduct extensive research to aid in your decision-making.