How to spot and avoid Pump and Dump schemes
In the financial world, a pump and dump scheme refers to a type of securities fraud where a group of investors attempts to artificially inflate the price of a stock or another kind of investment, and sell their holdings while the asset is at its peak. In the cryptocurrency space, these pump and dump scams can be quite prevalent.
There are even groups that advertise and offer their pump and dump signals to traders for a price. These “pump groups” will send out information via social media to their fellow pumpers while simultaneously flooding the internet with positive content about their chosen coin and rumors of huge partnerships that will soon to be announced.
The tweets and other social media submissions that these groups send out can blend in with the masses of crypto holders who genuinely think their three digit investment will send them to the moon in a flying Lamborghini. Many who are entering the cryptocurrency space can be naive and do not fully understand the technologies they are investing in. This often makes them unable to tell the difference between the scams and the earnest projects with true technological potential. It also makes them prime to fall for pump schemes. When new and possibly uninformed investors jump headfirst into the market they may see promises of gains of several hundred percent in short time-frames – as low as days or even of the course of a few hours.
A factor that makes this even harder on novice investors is that pump and dump schemes can be applied to any coin. Some coins out there are devised as ICO scams and their developers have no real intentions of delivering a working platform. These coins will get pumped on social media and through press releases with the only intention of selling while the coin peaks.
However, a legitimate coin with a great team can get wrapped up in pump and dump processes as well. To avoid falling prey to a situation like this, experts warn investors to be wary of investing near all time highs and make sure you are willing to hold a coin for a significant amount of time. As always, make sure you do your research and check multiple sources before throwing your money at a specific coin.
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