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How Can You Identify Pump-And-Dump Crypto Scam

Crypto scam
Crypto scam

Although blockchain technology and digital coins are relatively new, they are nevertheless susceptible to the same scams that have been going on for years. Pump and dump schemes are one of these scams.

On regulated cryptocurrency exchanges, pump and dump schemes are forbidden. However, the unregulated cryptocurrency industry has given the scams a fertile ground because participants are certain they won’t be quickly apprehended by authorities.

How do pump and dump strategies operate is the key concern for those in the blockchain sector. In order to identify the method utilized to execute the schemes, this essay examines them in more detail.

What Exactly is Pump And Dump

Pump and dump cryptocurrency schemes are situations where a person or group of people intends to benefit by introducing an asset to the market. The practise of buying a lot of a particular coin in order to increase its demand and price is referred to as “pumping.”

Then, in order to generate a high return on investment, they sell the assets at a higher price. In order to trick investors into thinking that price fluctuations are a natural trend, con artists exploit the mechanics of supply and demand in the market.

Scammers frequently target brand-new, niche coins that are easy to manipulate and do not cost a lot of money. For instance, because it would cost a lot of money, con artists would not frequently consider using a Bitcoin pump and dump to start a bullish run.

Scammers frequently target initial coin offerings (ICOs) since many investors are psychologically prepared to make a purchase, which allows them to profit more from pump and dump scams. Prior to the ICO, there is a lot of lobbying to promote the pumped asset favourably.

How a Pump and Dump Works

Pump and dump strategies revolve around a group of tech-savvy, driven, and well-organized people. These players play from various angles to make the publicity seem authentic.

Investors that give money to buy the tokens and increase demand are frequently part of the team. If the chosen token is a low volume asset, scammers can control the supply and set the price by purchasing the majority of them.

Another team is working hard to highlight the positive aspects of the tokens as the inner team concentrates on increasing the false supply. Scammers used word-of-mouth in the past to persuade individuals to purchase dump and pump shares.

Scammers can now easily persuade cryptocurrency purchasers by using social media sites like Telegram, Facebook, and Twitter. Scammers even organise clubs and work with influencer marketers to publicise the benefits of the tokens.

For fear of missing out on a lucrative opportunity, traders and investors scramble to purchase the tokens. The hype and demand fade as soon as the con artists sell all of their tokens. As soon as investors understand it was a hoax, the price immediately drops. But it’s too late now!

Five Steps for Pumping and Dumping Cryptocurrencies

Being sufficiently prepared is crucial if you intend to pump and dump a cryptocurrency. This entails conducting a thorough research of the desired cryptocurrency to determine the anticipated outcomes and returns. The five main steps for a successful pump and dump scheme are listed below.

Create a Group for the Pump and Dump Strategy First

A pumping and dump operation starts with putting together a whole team to influence the market. Here, the goal should be collaborating with those who are knowledgeable about the cryptocurrency industry.

To increase demand from other places, the organization could be divided into smaller parts. The team should include market experts who can accurately predict when to begin buying or selling.

Crypto scam
Crypto scam
Find Investors And Prepare the Money to Make Quick Transactions

You need to organise enough resources to buy the tokens from the market because a pump and dump cryptocurrency will need to involve a significant purchase to produce a fake shortage. If you find yourself short on cash, think about hiring investors.

Run a Ferocious Publicity Effort to Pique Users’ Interest

You must execute an aggressive marketing effort if you want more customers to visit the market and make purchases. It’s crucial to use sites that won’t reveal your identity quickly in this situation. Think of running similar crypto groups and using pseudonyms on social media, for instance.

The goal is to increase demand for the coin and foster a culture of fear of missing out (FOMO). Start purchasing quickly when more people become aware of the token to show that demand is increasing. Act immediately to prevent others from taking advantage and purchasing as well.

When The Token Price Reaches its High, Attentively Watch it And Sell

Start selling the coins you just purchased as the price nears its high. The moment of highest returns is at this point. The peak will pass quickly, so try to sell as many tokens as you can. The climax may occasionally just last a few hours or minutes.

If You Used a Cryptocurrency Exchange, Be Careful to Transfer Your Money Right Away to Your Wallet

It’s vital to remember that even while local laws control cryptocurrency exchanges, running a pump and dump operation could expose your cash to risk. So, immediately transfer the funds to a safe wallet.

How to Recognize a Crypto Pump-And-Dump Scheme

A crypto pump-and-dump fraud is simple to see after the fact. But when the rug is yanked out from under cryptocurrency investors and they are left holding the bag, that doesn’t help them much. Investors would benefit from being aware of the warning indications of a potential pump-and-dump scheme in advance.

Research is the first step in preventing a pump-and-dump scam. Don’t hurry to invest if you see a relatively unheard-of cryptocurrency being promoted by online strangers. Find the token’s white paper, look it up, and read it. Find out who is behind it and what the goals are. To ascertain whether a cryptocurrency has the ability to appreciate in value over the long term, you should perform this analysis.

It is advised to stay away from a token if it has been around for a while but the project’s development appears to have stopped. Any project that has a clear goal, makes exaggerated promises about advantages, has a poorly thought-out development path, or is connected to previous bad actors raises red signals as well.

Another major warning sign is when people you follow start talking about cryptocurrencies when you don’t usually follow influencers in the finance industry, particularly cryptocurrency experts. Why is this fashion influencer you follow bringing up cryptocurrencies, you might wonder.

It’s crucial to see if a project has its own website and social media presence if you come across a prospective crypto investment on social media. Instead of relying on information from other sources, go directly to the source.

Look at how the cryptocurrency trades if there are no warning signs in the documentation or the way the investment is being marketed. It is more likely to be a safer investment if it is listed on a reputable exchange. You should delve further into the order book if you have to investigate some unidentified DeFi exchange.

The majority of exchanges will display both the order history and all open orders for an asset. Examine the trading volume pattern. Be wary if it recently soared and the volume seems to be increasing. There is a chance that a sizable group is preventing the price of the coin from falling below that price if you witness large walls of the cryptocurrency asset on the buy side. As the organizers pile into the currency, you might also witness large walls of sellers to ensure that the price doesn’t spike too quickly.

It’s better to stay away from a cryptocurrency if you think a pump-and-dump fraud is taking place.

Without insider knowledge, it is impossible to predict when the organizers intend to sell. However, you would probably be better off getting in touch with the Commodity Futures Trading Commission (CFTC) and giving them the information if you do have inside knowledge.

In late 2019, the CFTC issued a warning to investors about possible pump-and-dump frauds. It is rewarding whistleblowers with rewards. That means you can be an informant and potentially earn more money without engaging in any unlawful activity.

Remember that there is no such thing as 100% protection against frauds while investing in cryptocurrencies. Regardless of how well-known your currency or exchange is, use extreme caution when using it.

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