Pump and dump schemes are manipulative tactics employed in the cryptocurrency market, where a group of individuals artificially inflate the price of a low-liquid asset, only to sell off their holdings at the inflated price, causing a rapid price decline.
This is a real example of a pump and dump incident occurred last year. Six influencers on Twitter colluded to orchestrate a coordinated pump and dump scheme, targeting low-liquid coins with daily trading volumes below 20K. To artificially inflate the price, these influencers would pool their resources, often investing just 1-2 BTC, which could have a significant impact on the smaller market.
Pump and dump schemes involve influencers promoting a coin to create FOMO among their followers, leading to a rapid surge in price. Once the price reaches a desired level, influencers sell their holdings, causing a sharp decline and leaving buyers at a loss. Investors must be cautious, do thorough research, and seek trusted advice to avoid falling victim to such schemes. Prioritizing safety and making informed decisions are essential.
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