As the cryptocurrency market has evolved, so have theft and fraud.
Traditional fraud methods where a scammer defrauds you of an investment amount or steals it from your wallet have been exposed.
Therefore, frauds have begun to occur within the framework of investing in the market. Most of the time, the victim considers his loss in a certain currency to be a natural loss in the market, but in fact, the loss is a systematic, but indirect, fraud. So what are Pump & Dump currencies and how to avoid them? All this and more we will discuss in this article.
Pump & Dump Coins
The idea behind Pump & Dump is to play on the victim’s greed, where the scammer will fake a price increase to trick the victim into thinking that the coin is going to go up, and when the investor enters the coin, the scammer will immediately sell it. Pump & Dump coins are not limited to new coins that the scammer can create, but the scammer may also use an existing coin in the market and manipulate its price to sell to investors.
How does the Pump & Dump process work?
As we mentioned at the beginning of the article, the scammer manipulates the currency price in two ways: either by creating a new currency or by choosing an existing currency in the market.
To create a new currency:
As we have seen recently, creating coins, especially meme coins, has become very easy, and anyone with less than $10 can create a cryptocurrency.
But after creating the digital currency, the fraudster either buys the currency from multiple wallets of his own to raise the price of the currency in an imaginary way, or markets it on social media platforms to convince as many investors as possible to enter the currency. After investors enter the currency, the fraudster drains the liquidity on them and exits the currency completely.
As for choosing a currency available in the market:
The issue is more complicated. The idea of choosing a currency that is already in the market is to hide the scammer's connection to the currency because he will appear as a regular investor.
The fraudster's choice of currency depends on several factors, the most important of which are:
- The currency should be listed on many platforms, especially the large ones.
- The currency is for a weak project or its team is inactive.
- The trading volume of the currency is relatively small.
By achieving these factors, the fraudster starts manipulating the currency price and buying quantities of it to raise the price. After the currency rises, investors start to pay attention to it because it has achieved high profits and they enter into it. Here the fraudster starts to dispose of new investors.
How to Avoid Pump & Dump Coins
If you are trading meme coins or new coins in general, the risk of Pump & Dump cannot be completely ruled out, but is a fundamental element of all such coins.
But you can reduce the risk by analyzing the coin holders and making sure that the total coin is not concentrated in a certain group. You should also make a rule that all meme coins are scams and Pump & Dump until proven otherwise. So, if you want to enter them, you should do so with a small percentage of your portfolio, not exceeding 10%.
As for the currencies listed on the platforms, my advice is not to get FOMO (fear of missing out). The deadly weapon that the scammer uses to scam you is your greed. Do not get carried away with investing in a currency just because it suddenly rose. If you do not see a clear reason for the currency’s rise, or a reasonable analysis that justifies this rise in price, then know that what happened is most likely price manipulation. Always remember that investing requires good study and analysis. Make wisdom and analysis your basic tools in decision-making, in order to protect yourself from potential risks, fraud and scams.
