If you are new to coin-trading and have just been added to a Pump and dump (P&D) group on any social media platform, then leave immediately if you do not want to fall victim to hoarders. Here’s why.
What exactly is pump and dump?
Pump and dump is an illegal scheme that attempts to boost the price of a coin by manipulating information, taking advantage of new traders’ fear of missing out (FOMO).
‘Pumping’ — The schemer proceeds to buy heavily into a coin that trades on low volume, which usually pumps up the price.
The fraudsters will convince other traders to buy it by spreading misleading, false, or grossly exaggerated statements and information through social media channels, e-mails, newsletters or posting to online chat rooms and message boards. This makes the price skyrocket.
‘Dumping’ — They will then offload their shares to the new traders who enter the market at a higher price. The price then reaches the peak, makes a sharp fall and the new traders end up with a typically worthless security.
As a result, the fraudster are benefited by buying in cheap coins, deceiving to boost the price and selling out, while the new traders end up losing money.
This fraud are extremely common in stock markets, and even real estates. Pump-and-dump schemes were traditionally done through cold calling. But with the advent of the internet, this illegal practice has become even more prevalent.
Why is pump and dump so common if it’s illegal?
First of all, cryptocurrency exchanges are decentralized and not regulated. Currently, there has been no legislature about cryptocurrency exchanges. So even though a pump and dump is unethical, it is not officially illegal at the moment.
Second of all, although the cryptocurrency trading market is evolving, of thousands of coins very few are commonly traded: Bitcoin, Ethereum, Bitcoin Cash, Ripple, ADA, DASH, TRX, LTC, ETC, NEO, NEM, XEO. Therefore, the remaining alt-coins are very likely to be used in pump and dump.
How to avoid pump and dump?
- Be skeptical: The best way to avoid getting caught in a pump and dump scam to not fall prey to all those offers that sound too good to be true.
- Avoid risk: If you’re a beginner, you might want to avoid low-volume coins. Consider targeting cryptocurrencies with reliable structures and respected personalities. So it’s critical to do your research beforehand.
- Spread your resources: Never invest your capital into 1 single coin, in stead choose 3–4 coins. 60–70% of your capital should be invested in top coins such as BTC, ETH, XRP, or the like. The remaining is used to make more risky trade.
- Do your research: Make sure to comprehensively review the targeted token before investing. This will help you note unusual trends in the market.
Although it is technically possible to make a huge return on your investment in a short period of time, you must realize it is statistically not likely to happen.
A grasp of what pump and dump means hopefully will help you stay away from pump-and-dump fraudsters. With any kind of investment, just remember to keep your vigilance and keep the odds of investment success in your favor by always doing your own research.
