Pump & Dump is one of the most menacing scams perpetuated by illicit crypto scammers today. In simple words, it refers to a fraudulent process of inflating the price of a cryptocurrency via misleading statements. The investors (read scammers) behind the scheme convince amateur traders they have an incredible investment opportunity waiting before them. Such announcements lure in many novice traders to the game who are enticed by the hope of getting wealthy quick. But, what these novice traders don’t get to know is that these scammers had already been acquiring the coins for a long time when the rates were low.
Being influenced by these scammers, new traders plunge in to buy the coins in large numbers which eventually shoots up (read pump) the coin’s price. As it happens, those scheming investors quickly sell off all their bags, dumping the price right on the novice traders. It leaves these innocent traders with huge losses which they may not be able to recover ever.
“Pump & dump schemes mostly happen with coins with comparatively smaller market cap. This way, it becomes easier for scammers to take control of the coin’s price as well as manipulate amateur traders. If the trading volume seems to be low, it just takes very limited buying power for inflating a coin’s price to extreme levels “, stated Sydney Ifergan, crypto expert and the CEO of The currency analytics (TCAT).
The worst part is all these pump & dump schemes happen openly, through social media channels like Twitter, Reddit or Telegram.
“The P&D schemes are no doubt a menace. Such practices throw a negative impact on the entire crypto market- unleashing fear, doubt and uncertainty across the whole crypto community”, stated Oleg Seydak, CEO of a leading crypto lending marketplace.
“Such kinds of illicit manipulation affect especially the novice investors in the crypto industry. If the crypto industry has to grow, we all must join hands to prevent and stop these groups and channels.”
How to avoid?
“Be watchful of the language which tries to cash in on FOMO of new traders on social media”, warned Mr. Ifergan. According to him, if you find social media groups making unreasonable claims about a crypto coin’s price, consider a red flag.
“If you find words like –“xxx crypto coin’s price is dirt cheap now” or “is flying”- beware. Such languages are mostly used by Pump & Dump scammers to lure innocent traders aggressively.”