If you've ever been involved with cryptocurrencies or stock trading, you've probably heard the expression **Pump and Dump**. It's one of the oldest market manipulation schemes that has migrated from the world of traditional finance to cryptocurrencies. Today, we'll look at how it works, who's involved, and how to avoid becoming a victim.
How does Pump and Dump work?
Pump and Dump is a scheme in which the price of an asset is artificially inflated (called a pump) and then quickly collapses as the organizers sell off their assets (called a dump).
It goes something like this:
1. Selecting an asset.
Usually, a cryptocurrency with low capitalization and low trading volume is chosen. Why? Because such assets are easier to "shake up".
2. Pampa organization.
A group of people called "pumpers" collude and start buying up the selected asset. This causes the price to rise sharply, which attracts the attention of other traders.
3. Attracting newcomers (victims).
When the price starts to rise, "FOMO" (fear of missing out) kicks in. People, seeing a sharp rise, start buying in the hope of making money, not realizing that they have become part of manipulation.
4. Dump (price collapse).
When the price reaches its peak, the organizers quickly sell their assets, locking in profits. At this point, the market begins to fall, and those who bought at the peak are left with losses.
Who participates in Pump and Dump?
1. Organizers.
These are people or groups who collude in advance to manipulate the market. They buy an asset in advance at a low price and trigger a "pump".
2. Victims.
These are newbies or inexperienced traders who, seeing the price rise, give in to emotions and buy the asset at its peak. It is their money that becomes the organizers' profit.
3. Observers.
These are experienced traders who understand what is going on, but sometimes they still participate in order to make money before the dump. However, this is risky, and many also end up in the red.
Why is Pump and Dump illegal?
In traditional finance (such as the stock market), such schemes are strictly prohibited and their organizers can be prosecuted. But in the world of cryptocurrencies, where regulation is weak or nonexistent, pump and dumps remain common.
Additionally, unlike stocks of large companies, many cryptocurrencies have no real value or project behind them. This makes them an ideal target for manipulation.
How to recognize Pump and Dump?
To avoid getting caught, pay attention to the following signs:
1. A sharp and unjustified increase in price.
If a little-known cryptocurrency suddenly increases in price by 100-200% in a short period without any news or updates from the project, this is a signal to be cautious.
2. Active advertising in social networks.
Often, pump organizers launch mass advertising on Telegram, Discord or Twitter, promising huge profits.
3. Small capitalization.
If a coin's market cap is low, it makes it vulnerable to manipulation.
4. Low trading volume.
On crypto exchanges, you can see that before the pump, the trading volume was negligible, but during the growth it increased sharply.
How to protect yourself?
💡Don't believe promises of easy money.
If someone is actively encouraging you to invest in a coin, it's most likely a scam.
💡Study assets.
Before buying, make sure the cryptocurrency has real value, a project, and a community.
💡Don't give in to emotions.
FOMO is the trader's worst enemy. If you see a sharp rise in price, do not rush to buy until you understand what is happening.
💡Diversify your portfolio.
Don't put all your money into one asset, especially if it looks suspicious.
Pump and Dump is a dangerous game where only the organizers win. Most participants, especially newbies, end up with losses. It is important to remember that the cryptocurrency market is full of risks, and the best way to protect your money is knowledge and common sense.
If you want to make money on cryptocurrency, study the market, develop a strategy and avoid dubious schemes. There is no easy money, and Pump and Dump is a prime example of this.
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