Identifying the Telltale Signs of a Pump and Dump Scheme
Detecting a pump and dump scheme requires vigilance and an understanding of red flags. Let’s look at some of the key indicators:
Unexplained Price Surges: Sudden, substantial price increases without a clear catalyst can be indicative of a pump and dump scheme.Paid News Articles and Social Media Hype:
A small-cap coin being widely covered in paid news articles and experiencing a surge in social media attention often suggests a pump in progress.
Chat groups, forums, or influencers are often engaged to spread positive but unsubstantiated or misleading claims about the cryptocurrency, such as partnerships, endorsements, upcoming events, or technical breakthroughs.
Low Trading Volumes and Market Capitalizations: These schemes thrive on illiquid cryptocurrencies, so avoiding such assets can significantly reduce your risk.
Pump and dump coins usually have a low market capitalization, trading volume, and liquidity, making it easier to manipulate the price with relatively small amounts of money.
Active use of FOMO: Pump and dump promoters will often urge potential buyers to act quickly and not miss out on a once-in-a-lifetime opportunity, creating a sense of urgency and fear of missing out.
Listings on Obscure or Unregulated Exchanges: Here there is less oversight and transparency.
Exchanges like Coinbase, Kraken, Binance and others have strict listing rules and the process is expensive.
This discourages scam coins.Questionable Investment Advice:
Be cautious of investment advice from social media and unverified sources, as these can lead to significant losses. Investment advice from celebrities is particularly high risk.
