Smart Ways to Recognize Pump and Dump Fraud in the Crypto Market.
A pump and dump is a market manipulation scheme in which a perpetrator creates or acquires a large number of altcoins, promotes them to fraudulently inflate the price of the token (pump), and then cashes out by selling (dump) them to unsuspecting crypto investors.
Pump and dump schemes aren't unique to crypto—they have roots in traditional finance dating back to the South Sea Bubble era of the early 18th century. Even the king of Great Britain, George I, bought shares in the South Sea Company during the pump. When the company went bankrupt in 1720, Isaac Newton, the Royal Society, and many investors, rich and poor, fell victim.
Investors don't need deep technical knowledge to spot these signs, just vigilance. And, of course, keep in mind that if an investment opportunity looks too good to be true, it's probably a scam. Pump and dump schemes in the stock market are illegal in some parts of the world, including the US and EU, where securities laws prohibit them. However, crypto fraudsters use anonymity to evade authorities, and crypto remains in a regulatory gray area in much of the world.
Pump and dump schemes are nothing new, but by using new technology, they are becoming smarter and less easy to detect. Using investors' new analytical skills, and staying up to date on the latest scams can help investors avoid them, but it's not the only thing investors can do.
Pump and dump schemes are just one of many ways fraudsters try to take advantage of unwary investors. By understanding how these schemes work and the red flags to look out for, investors can protect themselves from financial loss and keep their investments safe.
