Pump-and-dump scams are existing at the beginning of the trading of crypto securities. The concept is that when the price of a sparsely traded asset, such as a risky investment becomes low then the individuals buy it. Moreover, The price of the asset continues to increase as more investors buy into it. After the price is being "pumped," the scam's creator sells their stake to the other customers. They own such a large fraction of the outstanding shares and the price plummets. Here are some pointers that you should be aware of.

  • The pump-and-dump scam is a stock-price-inflating method that uses recommendations based on incorrect, fraudulent or excessively inflated information.
  • Traders that engage in pump-and-dump trading prefer to communicate via social media platforms or anonymous messaging apps like Telegram.
  • The scheme's advocates start spreading rumours, misinformation, or hype in order to artificially inflate interest in the security and drive up its price.

    • What is the process of a crypto pump and dump?

    A crew of tech-savvy, determined, and well-organized gamers are the key concepts of pump-and-dump scams. Investors are frequently included in the team, who give funds to purchase tokens and increase demand. If the token chosen is a low-volume traded asset, scammers can control the supply and set the price by buying a large number of them.

    While the inner team focuses on artificial supply, another team is working hard to show the tokens' positive side. Scammers used to employ word of mouth to persuade customers to buy dump and pump stocks. Scammers nowadays use social media platforms like Telegram, Facebook, and Twitter to urge crypto buyers. Scammers even establish organizations and use the help of influencer marketers to spread the word about the tokens.

    How to recognize a pump and dump cryptocurrency scheme?

    Understanding the mechanics of a pump and dump is the simplest method to recognise. There's a significant possibility manipulation is at work if the value of a relatively unknown currency goes quickly without justification. Do some research before making any purchase. You need to avoid jumping into a project without first conducting the study.

    You may lose some money if you wait a little longer to invest, but having more trust in your investment will provide you peace of mind in the long term. If you're doing a pump and dump, the extra time could spare you from ending up with a wallet full of worthless coins.

    How to Avoid Cryptocurrency Scams?

    Scams are simple to fall for in an unregulated economy.

  • If you come across a relatively obscure cryptocurrency being promoted by anonymous strangers, don't rush to invest. Take a look at the token, then find its white paper and read it.
  • You should do this for any cryptocurrency to see if it has the possibility to grow in value over time.
  • If the project has a defined objective, claims excessive advantages, lacks a well-thought-out development roadmap, or is affiliated with previous bad actors, these are all red signs.
  • Another significant red signal is if the people you follow start talking about cryptocurrencies all of a sudden.
  • Most exchanges will display all open orders as well as the order history for an item. Examine the trading activity trend.

    • Bottom line

    If you get a stock tip from someone you don't know, think about why they would be so keen to share such knowledge with you. Don't expect a substantial and quick return on your investment because it's unlikely to happen. It's also critical to conduct your own research before making any investment. This should keep you from falling for pump-and-dump schemes.

    Author's Bio: 

    Rea Setia is an passionate writer. She loves to share business tips and her experience about industry.