When there is money to be earned there will always be people who are trying to take advantage of others. With cryptocurrencies because of the lack of regulations there is a higher risk of scamming and scheming.
One of those dubious schemes is called the Pump ‘n Dump group. The group is made up of a leader or captain and a group of followers (mostly on Whatsapp or Telegram). The leader of the group informs the followers about the details of the pump and dump.
Details include: The targeted Exchange, the time of the pump ‘n dump, the cryptocurrency needed to buy the coin and the strategy, all but the cryptocurrency that is going to be pumped.
The strategy basically is to all start buying at the same time (the more followers the better). This will cause the price to skyrocket. After that the group will hold the coin, depending on the instructions of the leader for 10 - 30 minutes.
During the operation the leader will send the instructions and updates to his followers
The next step is hyping the coin on Social Media (Twitter for example) to lure in interested parties. When FOMO induced buyers also start trading, the coin will keep the upward momentum going, achieving 400% - 600 % gains.
After the pump the leader will signal for the selling part of the operation, he will instruct his followers to start selling the coins (above market price to keep the pump going).
Another part of the strategy is not to sell in bulk but in parts so that you avoid a complete dump of the coin
After all is well and done, the group should have made some real money, really fast.
These kind of ads are used to gather a large group of participants. I am not adding a link to this picture because I don't want to promote these groups or activities.
But…..In reality things are not as advertised.
You see the only way to really profit from these kind of groups is if you know beforehand which coin is going to be pumped.
This way you can buy your coins before anyone else and avoid the massive increase in price that will occur when the pump ‘n dump group start buying coins.
With a group of 1500 member the price of the targeted coin can double in a couple of milliseconds, so it is near impossible to buy the coin at a reasonable price.
And that’s when things go even more sideways.Can you imaging managing 1500 nervous cryptotraders with nothing more than a messaging app? It would be hard to do even if you knew everyone in the group but with total strangers and money on the line, things go south really, really fast.
After people realize that they bought in too late, they start to go off script in an effort to reduce the loss and start dumping fast. This causes others to follow suit and a couple of minutes after the pump started the price starts to drop fast (and I mean real fast).
So you probably wonder why to bother at all? Well, there is a small group that always comes out ahead and those are the leader and his inner circle. Because they already bought coins before the coin was announced to the rest of the group.
So when the followers start buying, they actually are already buying the coin at a higher price.
Things get even more devious, because now the leader and his inner circle have the option to sell their cheaply bought coins to the followers who are participating in the pump ‘n dump with insane profits.
In theory a pump 'n dump could actually workout for everyone, I am sure of that (besides the morality of it all). But what you need is a dedicated, disciplined group who follow the instructions to the letter otherwise the followers will never get something out of the pump ‘n dump.