What is pump and dump

Pump-and-dump schemes have existed since the beginning of the securities market. The concept is that when the price of a traded asset is low, a person or group of individuals buys into it. They then begin spreading favourable information about the item. Most of the time, the good news is absolutely manipulative. The price of the asset continues to rise as more investors buy into it. Once the price has been sufficiently "pumped," the scam's creator sells or “dumps” their interest to the remaining traders. Because they possess a large majority of the outstanding shares, the price plummets.

Pump-and-dump scams are a type of a fraud. The scheme's creators want to defraud unsuspecting investors by enticing them to purchase an asset based on misleading information. When those investors buy in, the pumper sells, thus driving down the price. As a consequence, the fraudster makes a lot of money while the victims lose a lot of money. In the securities market, there are a variety of rules that make this unlawful. It is illegal to gain money or property by means of any incorrect statement of a material fact or any failure to state a material truth.

Cryptocurrency market is especially vulnerable to it, because it is not regulated. Typically, a pump-and-dump cryptocurrency operation begins with an organizer forming a secret online club of influencers. To avoid price surges, they'll coordinate buying the target crypto asset. The influencers will publish information about the deal with their followers on social media whenever they're ready to inflate the asset and persuade the wider public to buy in. The organizers will then plan the sale, such as the dump, to ensure that everyone is paid, leaving the public investors carrying the bag.

The fact that organizers don't have to look hard for lightly traded crypto assets makes crypto particularly vulnerable to this practice. They may just make them. The only need for generating a new cryptocurrency is some basic research and coding skills.

A pump-and-dump crypto fraud is easy to spot. When the rug is pulled out from under bitcoin investors, however, they are left holding the bag. It pays for investors to recognize the warning indications of a possible pump-and-dump scheme before it occurs.

Doing your homework is the first step in avoiding a pump-and-dump scheme. Don't jump in if you see a relatively obscure coin being promoted by online strangers. Look up the token and read the white paper it came with. Figure out who's behind it and what their goals are. You should do this for each cryptocurrency to see if it has the potential to rise in value over time.

It's better to avoid a token that has been there for a long time but work on the project appears to have stopped. If the initiative has no clear objective, claims unrealistic advantages, has a well-thought-out development path, or is linked to prior bad actors, these are all warning signs.

Manipulation of market has been around for long time. The biggest recent manipulation like that was on stock markets – Game Stop. Many retail investors and fans of the Game Stop company agreed on Reddit, social platform, that they will buy the stock at the same time and thus caused it to skyrocket. Because the stock was mostly shorted, many hedge funds were in a big loss.