Pump and dump is one of the most common market manipulation schemes in the cryptocurrency world. This scheme involves a deliberate attempt to increase the price of a crypto asset through false or misleading information, then selling it when the price has risen to make a profit, leaving other investors with huge losses. The term comes from English: "pump" means to raise, while "dump" means to throw away or sell in large quantities.
How Does a Pump and Dump Scheme Work?
1. Pump Phase (Price Increase):
The scheme begins with the perpetrators buying a certain crypto asset in large quantities. This step is followed by the spread of positive information that is often exaggerated or even false. They use various communication channels such as social media, forums, Telegram groups, and Discord to trigger market enthusiasm. As a result, the price of the asset begins to skyrocket because many investors are tempted to buy.
2. Dump Phase (Mass Sales):
Once the price reaches a high level, the players will start selling their assets in large quantities. This massive selling causes the price to fall drastically. Meanwhile, investors who enter later will usually suffer huge losses because the price falls faster than they expected.
Characteristics of Pump and Dump Scheme
1. Sudden Price Surge:
One of the main signs is an unreasonable price increase in a short period of time without any clear fundamental reason.
2. Sudden High Trading Volume:
The trading volume of the asset will increase drastically when traders start pumping up the price.
3. Excessive Spread of Information:
News or rumors about assets that seem too good to be true often circulate on social media or community groups.
Why Do These Schemes Happen in Crypto?
• Lack of Regulation:
The cryptocurrency market is still relatively new and less regulated than traditional financial markets, providing opportunities for actors to manipulate prices.
• Anonymity:
The anonymity offered by crypto transactions makes perpetrators more difficult to track.
• High Volatility:
The crypto market is known to be highly volatile, making it easy for extreme price movements to occur in a short period of time.
Pump and Dump Scheme Example
One famous example occurred in 2017 when small coins or altcoins were often targeted. The perpetrators took advantage of the Initial Coin Offering (ICO) hype by spreading false information to drive up the price. After reaching its peak, the price immediately plummeted when they sold the coins in large quantities.
Negative Impacts of Pump and Dump
1. Financial Losses for Investors:
Many investors, especially beginners, get trapped and experience huge losses.
2. Decrease in Trust:
This practice undermines confidence in the crypto market as a whole, making investors hesitant to participate.
3. Unhealthy Volatility:
Pump and dump creates unhealthy volatility, tarnishing the image of cryptocurrencies in the eyes of institutional investors.
How to Avoid Pump and Dump
1. Do In-depth Research:
Don't believe hype or rumors. Always check information from trusted sources.
2. Pay attention to price movement patterns:
If there is an unusual price spike, be alert and find out the cause before deciding to invest.
3. Hindari FOMO (Fear of Missing Out):
Don't rush into buying just because you're afraid of missing out on a trend. Wise investing requires in-depth analysis.
Conclusion
Pump and dump is a dangerous scheme that can harm many investors, especially in the still-emerging cryptocurrency market. It is important for investors to remain vigilant and do their research before investing in any asset. With a good understanding and critical attitude, you can avoid the pitfalls of this scheme and protect your investment portfolio.
