The comprehensive guide to recognizing and avoiding cryptocurrency pump-and-dump schemes
The cryptocurrency sector has been a hotbed of investment frauds, with pump-and-dump crypto schemes being among the most frequent. A pump-and-dump crypto scam is a sort of financial fraud in which individuals or organizations fraudulently raise the price of an asset, such as a cryptocurrency, by disseminating false information and building hype about it. They then sell their assets for a profit when the price has risen owing to increasing demand. This leaves naïve investors with a useless investment and significant losses.
Crypto pump-and-dump strategies are not new and have existed for a long time. However, with the emergence of cryptocurrencies, they have grown more popular and complex. The decentralized and uncontrolled structure of cryptocurrency allows fraudsters to carry out these scams with impunity.
It is critical to recognize pump-and-dump cryptocurrency schemes in order to avoid falling victim to investment frauds. These scams can result in large financial losses, and investors must be aware of the warning indications to safeguard their interests. In the parts that follow, we'll go over how these scams operate, what to look out for, and how to avoid falling for them.
Features of a Pump-and-Dump Crypto
1. Sudden Price Jumps
A rapid and considerable surge in the price of a cryptocurrency is sometimes the first indication of a pump-and-dump operation. This price fluctuation is frequently accompanied by large trade volumes, giving the appearance that the cryptocurrency is in strong demand. Pumpers take advantage of the abrupt price surge to entice naïve investors wanting to earn a fast profit. When the price hits a specific level, the pumpers sell their shares, causing the price to fall sharply, leaving investors with substantial losses.
2. High trading volume
A rapid increase in trade volume without any important news or updates is another indication of a pump-and-dump strategy. This sharp surge in trade volume is frequently indicative of pumpers' fraudulent manipulation. The large trading volume is utilized to create the illusion of demand for the cryptocurrency, causing the price to rise. However, this demand is not real, and when the pumpers sell their holdings, the price plummets, leaving investors with large losses.
3. Marketing and Promotion
Pump-and-dump strategies use social media hype and marketing to generate attention about a coin. Pumpers utilize phony news items, social media posts, and other forms of marketing to give the appearance that the cryptocurrency is in high demand. The hoopla and advertising are designed to entice unwary investors seeking a quick payoff. Pumpers may also construct bogus social media profiles to generate the appearance of bitcoin demand.
5. Lack of transparency
Crypto pump-and-dump scams sometimes include anonymous people or organizations, making it impossible to monitor their activity or verify the information they supply. Pumpers may use false names or identities to conceal their genuine motives. They may also utilize fictitious social media profiles and other strategies to create the appearance of demand for cryptocurrencies. The lack of transparency should raise warning flags for investors, prompting them to conduct due diligence before investing in any cryptocurrency.
Examples of Pump-and-Dump Crypto
Bitconnect (BCC) was a cryptocurrency that offered high profits via a lending scheme. However, bitcoin was a typical pump-and-dump scam that lured thousands of investors worldwide. The plan worked by creating phony demand for the cryptocurrency, pushing up its price, and then dumping it on unwary investors. Bitconnect's price fell sharply in January 2018, resulting in large losses for investors.
Safe Moon (SAFEMOON),is a cryptocurrency that promises high profits using its tokenomics concept. The cryptocurrency's popularity grew on social media, pushing up the price and drawing hundreds of investors. However, the cryptocurrency was a classic pump-and-dump fraud, with fake demand created before being dumped on unwary investors. The price plummeted immediately after, generating large losses for investors.
VikingsChain (VKG) has been linked to pump-and-dump operations in the past. There have been cases where the price of bitcoin has skyrocketed, followed by a sharp drop. One such incident occurred in November 2021, when VKG's price increased by around 350% after Elon Musk tweeted about the moon and the Vikings.
How do these schemes work and what impact do they have on investors?
Pump-and-dump methods work by creating false demand for a cryptocurrency, inflating its price, and then dumping it on unwary investors. Pumpers utilize a variety of strategies, including social media hype, false news items, and other forms of marketing, to create the appearance of demand for the coin. Once the price hits a specific level, the pumpers sell their shares, causing the price to fall sharply.
These scams may be catastrophic for investors, who frequently lose a large sum of money. Many investors fall victim to these scams because they do not complete adequate research or due diligence before investing. It is critical to be aware of any investment opportunity that appears too good to be true and to undertake extensive research before investing in any cryptocurrency.
How to Avoid falling into a pump-and-dump scheme.
1. Research cryptocurrency fundamentals before investing.
2. Use technical analysis to identify abnormal price and volume movements.
3. Do not invest based on hype and FOMO (Fear of Missing Out).
4. Stay Current on News and Market Trends.
Conclusion
Pump-and-dump crypto scams can be quite appealing to investors seeking rapid returns in the cryptocurrency market. Are cryptocurrency pump-and-dumps illegal? Then, certainly, they are unlawful, and those who engage in them face harsh repercussions. It is critical to be able to recognize the indications of a pump-and-dump scheme in order to avoid falling victim to these frauds. To prevent falling prey to a pump-and-dump scheme, undertake extensive research, employ technical analysis, avoid investing based on excitement and FOMO, and remain current on news and market movements. Remember that investing in bitcoin is a high-risk activity, and you should always proceed with care.
