Crypto pump and dump schemes occur when the price of a cryptocurrency is artificially inflated (pumped) by coordinated buying, followed by a sharp sell-off (dump) to profit from the higher price. Here are the main causes:
1. đ Low Market Liquidity : Coins with low trading volumes are easier to manipulate, making them prime targets for pump and dump schemes.
2. đ Lack of Regulation : The relatively unregulated nature of the crypto market compared to traditional financial markets makes it easier for bad actors to execute these schemes.
3. đ Social Media and Messaging Platforms : Coordinated efforts by groups on platforms like Telegram, Discord, or even Twitter can drive large numbers of people to buy a specific coin at the same time, inflating its price.
4. đMarket Manipulation : Whales or groups with large amounts of capital can drive up prices by buying large amounts of a coin and then selling off once the price has risen, leaving smaller investors with losses.
5. đ Influencer Endorsements : Influencers or crypto promoters can inadvertently or deliberately promote coins that are part of a pump and dump scheme, driving up interest and prices.
6.đ False News and Rumors : Spreading fake news, such as false partnerships or technological advancements, can lead to a surge in buying, inflating the price before the dump.
7. đ Anonymous Nature of Transactions : The anonymity of crypto transactions makes it difficult to trace and prosecute the individuals behind pump and dump schemes.
8. đ Hype and FOMO (Fear of Missing Out) : Inexperienced traders, driven by the fear of missing out on potential gains, can be lured into buying into a rapidly rising coin, only to lose out when the price crashes.
