A Pump and Dump is a common term for illegal trading actions, both in the old stock market and in the new crypto market. It involves the inflation of an asset price by feeding false and misleading positive information mainly to unexperienced investors who don't know if the information is true of false.
Cryptocurrencies are in general a prime target for pumps and dumps. It´s easy to get rich fast buy inflating some prices.
People that are not so much into crypto often say crypto in a whole is a pure pump and dump scheme, because some gains are just too enormous to be real.
Different groups of investors try to promote an asset with all available means. False promises, wrong facts and a lot of marketing are the fundamentals for every pump and dump. It is often promoted as "THE NEXT BITCOIN KILLER", that will finally change the world.
Pump and dumps seem to work mainly with small cap assets, but big organized pump and dump groups are able to pump even the biggest coins.
Pump and dumps are often organized in telegram or discord groups and charge a fee, promising different amounts of pumps per day. There are small groups but also big famous ones, like the McAfee Pump and Dump group with thousands of members.
The leading person communicates the exact time, location and the name of the coin. Next the follower buy the coin blindly.
Once the price has risen very much and the volume increases to its maximum, they sell their coins for short-term gains and the price dumps back, leaving a lot of people without any gains and a often usesless coin.
Example Pump and dump:
There are hundreds or even thousand examples for pumps and drumps. I will show you an example candle formation for a pump and dump scheme:
After the announcement the coin pumped to a new high and then dumped back to the initial price, leaving the new investors with a heavy bag of a useless coin.
An current example is the famous BitTorrent pump and dump, that took place at binance. The ICO was sold out after a few minutes. When BTT was released at Binance, the price was pumped from 6 to 18 satoshis. A few people sold and the price decreased a bit. Later the next big groups pumped the price even more ( up to 37 satoshis) and shortly after even more people sold and the dump continues. The next days were affected by more (but smaller) pumps and dumps. This may continue.
How can i protect myself?
- you should always keep in mind that some promises may too good to be true.
- always do your own due diligence and never follow blindly
- never Make a large investment based on a single tip
- never believe ads that promise quick wealth
And finally don´t participate! It´s against the law and 99% of the participants loose money.