What are some ways to identify a cryptocurrency pump and dump scheme? What are some warning signs that investors should be aware of?
Amid the always volatile cryptocurrency sector, there's a dark underbelly that investors need to be cautious of crypto pump and dump schemes.
Bitcoin, once an avant-garde digital asset, has now established its presence with regulated exchanges, US approved ETFs, institutional interest, and futures contracts. However, in general, the crypto space remains a wild frontier, with even seemingly reputable projects succumbing to attacks, as evidenced by the historic 51% attacks on Bitcoin SV and Ethereum classic.
Despite the bear market fluctuations, 2023 witnessed a surge in crypto scams with even more likely this year. Despite the seeming ‘legitimacy’ SEC-sanctioned ETFs bring to the market, investors must continue to exercise caution, as many seemingly genuine crypto projects are merely designed to exploit unsuspecting investors. Recognizing these fraudulent activities is crucial for preventing investment losses.
A crypto pump and dump scheme is a type of market manipulation where a group of people coordinate to buy a low-priced or obscure cryptocurrency, create hype and false information about it, and then sell it at a higher price to unsuspecting buyers.
This results in a sudden spike and crash in the price of the cryptocurrency, leaving many investors with losses.
The origins of crypto pump and dump schemes can be traced to traditional securities fraud. These schemes targeted small-cap stocks in the equity market, involving a coordinated effort to artificially inflate the price of a stock and then swiftly sell for profit.
In the cryptocurrency space, the same concept prevails, albeit with some variations.
