If you have ever encountered cryptocurrencies or stock trading, you may have heard the term Pump and Dump. This is one of the oldest market manipulation schemes that has migrated from the world of traditional finance to cryptocurrencies. Today we will explore how it works, who participates, and how not to become a victim.
How does Pump and Dump work? Pump and Dump is a scheme in which the price of an asset is artificially inflated (this is called "pump"), and then quickly collapses when the organizers sell their assets (this is "dump").
It happens approximately like this:
1. Choosing an asset.
Usually, a cryptocurrency with low capitalization and low trading volume is chosen.
Why?
Because such assets are easier to "pump."
2. Organizing the pump.
A group of people called "pumpers" conspires and begins actively buying the chosen asset. This causes a sharp price increase, attracting the attention of other traders.
3. Attracting newcomers (victims).
When the price starts to rise, "FOMO" (fear of missing out) comes into play. People, seeing a sharp increase, start buying in hopes of making a profit, unaware that they have become part of the manipulation.
4. Dump (price collapse).
When the price reaches its peak, the organizers sharply sell their assets, locking in profits. At this moment, the market starts to fall, and those who bought at the peak are left with losses.
Who participates in Pump and Dump?
1. Organizers. These are individuals or groups who conspire in advance to manipulate the market. They buy the asset beforehand at a low price and launch a "pump."
2. Victims. These are beginners or inexperienced traders who, seeing the price rise, give in to emotions and buy the asset at its peak. Their money becomes the profit of the organizers.
3. Observers. These are experienced traders who understand what is happening but sometimes still participate to earn before the dump. However, this is risky, and many also end up at a loss.
Why is Pump and Dump illegal?
In traditional finance (for example, on the stock market), such schemes are strictly prohibited, and their organizers can be prosecuted by law. But in the world of cryptocurrencies, where regulation is weak or absent, Pump and Dump remains a common phenomenon. Moreover, unlike shares of large companies, many cryptocurrencies have no real value or project behind them. This makes them ideal targets for manipulation.
How to recognize Pump and Dump?
To avoid getting caught, pay attention to the following signs:
1. Sharp and unjustified price increase. If a little-known cryptocurrency suddenly rises by 100–200% in a short period without any news or project updates, it is a signal to be cautious.
2. Active advertising on social media. Often, pump organizers launch mass advertising on Telegram, Discord, or Twitter, promising huge profits.
3. Low capitalization. If the coin's capitalization is low, it makes it vulnerable to manipulation.
4. Low trading volume. On cryptocurrency exchanges, you can notice that before the pump, the trading volume was negligible, and during the rise, it sharply increased.
How to protect yourself?
💡Don't believe promises of easy money. If someone is actively urging you to invest in a certain coin, it is likely a scam.
💡Study assets. Before purchasing, make sure that the cryptocurrency has real value, a project, and a community.
💡Don't give in to emotions. FOMO is the trader's main enemy. If you see a sharp price increase, don't rush to buy until you understand what is happening.
💡Diversify your portfolio. Don't invest all your money in one asset, especially if it looks suspicious.
Pump and Dump is a dangerous game where only organizers win. Most participants, especially beginners, end up with losses. It is important to remember that the cryptocurrency market is full of risks, and the best way to protect your money is through knowledge and common sense. If you want to earn on cryptocurrency, study the market, develop a strategy, and avoid dubious schemes. Easy money does not exist, and Pump and Dump is a vivid example of this.