Ever wondered how some traders navigate the treacherous waters of pump and dump schemes? While we don't endorse this strategy, understanding it can help you stay vigilant. Here's a closer look:

1️⃣The Gem Hunt:

Market makers look for low market cap, low volume, and low liquidity coins with perpetual listings. Ideally, they target coins with desperate teams or severely devalued prices to buy in at a discount.

2️⃣Cornering the Supply:

To control the game, market makers accumulate a substantial portion of the spot supply. This makes it difficult for others to arbitrage and generally hinders market-making activities due to limited inventory.

3️⃣Pumping the Spot:

Market makers initiate the pump phase, inflating the price through coordinated buying and positive news. The surge in spot prices often spills over to the perpetual futures market.

4️⃣Spot vs. Perpetual Dynamics:

When spot trading significantly surpasses the perpetual contract price, it results in negative funding rates. This makes it challenging for arbitrageurs to capitalize on the price difference.

5️⃣Educational Opportunity:

Inexperienced traders often misinterpret negative funding as an opportunity for a short squeeze. However, it's primarily driven by aggressive spot buying, not perp selling.

6️⃣Tourists Pile In:

As prices rise, traders pile into long positions, expecting a short squeeze that may never come. They also collect funding from being long, adding fuel to the fire.

7️⃣Exploiting the Momentum:

With arbers sidelined due to limited spot inventory and inexperienced traders falling for the short squeeze illusion, market makers trade as fresh longs, squeezing naked shorts with momentum.

8️⃣Cashing In: Once the price has reached its peak, market makers short the perpetual contracts. They then dump their spot holdings, profiting from both the pump and the subsequent dump.

9️⃣Repeat or Not: Market makers may rinse and repeat this cycle. Remember, while understanding this strategy can help you recognize warning signs, it's crucial to prioritize ethical and legal trading practices. Protecting yourself and promoting a safe trading environment should always be the top priorities.

#CryptoTrading #PumpAndDump #MarketMakers #EthicalTrading