Pump&Dump: how not to become a victim?
6 HOURS AGO · PUBLIC
While the cryptomarket grows, the top coins still remain almost the same: bitcoin, ethereum, ripple. Together, they occupy about 80% of all market, leaving others behind. Surprisingly, low-demand and cheap cryptocurrencies are very popular, but fraud schemes exist in this area quite often.
Pump and dump mechanism isn't something new. For years it had been known on Wall Street, until got regulated and forbidden. On the contrary, the cryptomarket - being completely unregulated - offers amusing opportunities for price manipulations.
As new coins and tokens mushroom every week, everyone (and especially newcomers to crypto) can become victims of pump and dump scheme. How not to get into it?
How does it work?
For people new to crypto and traditional stock trading, it would be a good idea to explain what an actual pump and dump is .
This scam involves two parties - pumpers and dumpers, obviously. Pumpers - the people with deep pockets (so called insiders) choose unpopular coins and buy many of them. The more, the better. Then they hype them up - in media, social networks like Telegram, and etc. The price goes sky high as more investors are attracted. The chain effect works perfectly: people are afraid to miss out the profit: and they buy, and buy, and buy.
That’s where the dumping starts - initial pumpers together sell off the tokens to crypto newbies: at the hyped price, of course. They dump massively, dramatically and rapidly. This unexpected action makes the price fall.
As a result, we have wealth traders, and a lot of contributors - with coins that value nothing.
Why would you actually care about pump and dump?
Pump and dump can do harm to both projects and investors. Here is why:
- A good coin that always performed well can become pump and dump victim: it will crash in the end.
2.Investors can lose much money on investing in bad “pumped” coins.
How to secure yourself from pump and dump?
If you don’t want to become a victim of token price manipulations, here are some tips for you:
1.Always double-check the news: don’t believe all the information you read, especially if you found it on unknown sites or blogs.
2.make your own research of the ICO project you want to join: check its ratings on several listings, read the White Paper, look at its activities, etc. The more open startup is, the more trustworthy it becomes to investors. For example, you are considering joining WELL ICO. You see that they’re active in chats, ready to answer all your questions; their ICO have been rated by different good listings, they have a proper White Paper and team with background. So this project can be trusted.
3.beware of the unknown cryptocurrencies and tokens that dramatically have risen in price almost instantly: that’s the red flag.
4.when the whole market gets depressive, stay away from the coin that all of a sudden gets a decent market cap and volume.
No doubt that pump and dump is a huge problem for the cryptocurrency market. While a small group of people (usually so-called bears or pump groups) deceive and earn, simple users/investors suffer, as well as many projects suffer - and suffer a lot.
That’s why one should learn how to read the signs of this kind of scam and avoid it. And, of course, invest only in reliable projects, double checking everything twice is good. Then both the nerves and money will stay well.