Cryptocurrency pump and dump scheme have started to become very popular as of late and understanding them could help honest traders steer clear of falling into a trap.
A cryptocurrency pump and dump scheme is basically a type of scheme where the price of a cryptocurrency gets hyped to soar significantly high before the initial authors of the scheme sell the cryptocurrency and the price goes down.
What is a Pump and Dump scheme?
Pumping is when the price is pushed to new heights and dumping is when the cryptocurrency is being sold in chunks. These types of cryptocurrency schemes are illegal according to Investopedia and can be harmful for the market and those that bought the cryptocurrency in hopes of it going up.
A pump and dump scheme is usually orchestrated by those that have enough capital to move markets. These could consist of either an individual or a group of individuals collectively.
Most of the time, a pump and dump is orchestrated by first buying massive amounts of the cryptocurrency without buying too much to make the price soar. Once the authors have put in their investment, they then proceed to hype the coin.
How a cryptocurrency is being hyped
“This cryptocurrency will explode!”
“To the moon!”
“Get ready for prices to skyrocket!”
Although there is usually a lot of hype about certain coins, most pump and dumps promote the particular cryptocurrency they plan on pumping and dumping as the “next big thing.” In order to get more and more buyers on the cryptocurrency, they start creating either an event or something that would require the cryptocurrency itself.
This is usually done by inviting people to certain group chats where the authors make them more confident in buying more and more of the cryptocurrency. Either they slowly pump up the price or give an announcement of an actual pump and dump promising massive profits to those that participate.
Pump and dump events
For a pump and dump scheme that relies on an event itself, the group or author would usually give bigger players heads ups before smaller players start buying the price. Once the price goes up, the larger players exit the game while the smaller players try to buy in while the price still goes down.
The whole event can take as long as a few days to just less than 5 seconds. Of course, the one that benefits the most are those that orchestrated the pump and dump but others that join can still make a profit if they are lucky.
When engaging in cryptocurrency trading, it is important to make sure that your devices are secured. Aside from having a strong password or physical protection for your cryptocurrency, it also helps to have a strong antivirus and using a reliable web browser. Certain browsers like ToR maintain the integrity of those that use it to a certain degree by automatically scrambling their IP address.