As the digital currency market develops, so does theft and fraud.
Traditional fraudulent methods through which the fraudster defrauds an investment amount or steals it from your wallet have been exposed.
Therefore, investment frauds began to occur in the market. Most often, the victim considers his loss in a particular coin as a normal loss in the market, but in fact, the loss is a systematic but indirect fraud. So, what are Pump & Dump coins and how to avoid them? All this and much more we will discuss in this article.
Coin Pump and Dump
The idea behind Pump & Dump is to play on the victim’s greed, as the scammer falsely inflates the price of the coin to deceive the victim into thinking that the coin is expected to rise further, and when the investor enters the coin, the scammer cashes out directly. Pump & Dump coins are not limited to new coins that the scammer can create, but the scammer can use an existing coin on the market and manipulate its price to defraud investors.
How does the Pump & Dump process work?
As we mentioned at the beginning of the article, the fraudster manipulates the price of the currency in two ways: either by creating a new currency or by choosing a currency that already exists on the market.
To create a new currency:
As we have seen recently, creating currencies, especially meme coins, has become very easy, and anyone with less than $10 can create a digital currency.
But after creating the digital currency, the fraudster either buys the currency from several of his own wallets to falsely inflate the price of the currency or sells it on social media platforms to convince as many investors as possible to buy into the currency. Once the investors buy into the currency, the fraudster drains their liquidity and exits the currency entirely.
Regarding the choice of a currency present on the market:
The issue is more complex. The idea of choosing a currency that exists on the market is to hide the scammer's connection to the currency because he will appear as a common investor.
The fraudster's choice of currency depends on several factors, the most notable of which are:
- The currency must be listed on many platforms, especially the big ones.
- The coin must be from a weak project or its team is inactive.
- The trading volume of the currency should be relatively small.
Once these factors are met, the fraudster starts to manipulate the price of the currency and buy quantities of it to increase the price. After the currency goes up, investors start to pay attention to it because it has made high profits and enter it. This is where the scammer starts to take advantage of new investors.
How to Avoid Pump & Dump Coins
If you are trading meme coins or new coins in general, Pump & Dump risk cannot be completely ruled out, it is an essential element of all these coins.
But you can reduce the risk by analyzing the coin holders and making sure that the total coin holdings are not concentrated in one specific group. You should also make it a rule that all meme coins are scams and pump and dumps until proven otherwise. So if you want to get in, you should do so with a small percentage of your portfolio, no more than 10%.
As for the currencies listed on the platforms, my advice is not to suffer from FOMO (fear of missing out). The deadly weapon that fraudsters use to defraud you is their greed. Don’t be tempted to invest in a currency just because it suddenly goes up. If you don’t see a clear reason for the currency’s rise, or a reasonable analysis that justifies this price increase, know that what most likely happened was price manipulation. Always remember that investing requires good study and analysis. Make wisdom and analysis your basic decision-making tools in order to protect yourself from possible risks, frauds and scams.