Unmasking the Shadows: A Comprehensive Guide to Identifying and Preventing Pump-and-Dump Schemes in Cryptocurrency Markets
The crypto world is open and welcoming for everyone. Anyone with a minimum amount can invest in crypto coins. There are many crypto exchanges available 24/7 for investors. They aim to provide services and create diverse solutions for investing in the crypto world. The open nature of the crypto world makes it suitable for investors. However, just like its openness, it is also the breeding ground for fraudulent activities. In the name of huge profit, many people lose their life savings because they are ignorant of valuable information. There are many types of fraudulent schemes used in the crypto world to fetch money from innocent investors. The most common type is pump-and-dump, which has been used many times in the entire history of the crypto world. This article is equipped with the details of the basics of pump-and-dump schemes and the necessary knowledge of how to identify and avoid falling victim to these highly fraudulent schemes.
Understanding Pump-and-Dump Schemes
A pump-and-dump is difficult to understand until you open your eyes and truly learn what is artificial and real profit. These types of schemes were always initiated with great hype and misleading statements by fraudulent people. Sometimes is also seen influencers promoting such schemes. The operating science of these schemes is very simple. The perpetrators first buy the crypto assets that have very low value, then inflate the price of holding coins with hype and misleading statements. Trying to create as much buying pressure and show people that these assets are remaining undervalued.
How Pump-and-Dump Schemes Work
To understand how the scheme operates, let’s break it down into multiple steps.
- Initial Accumulation: It is the first and most important step in the overall scheme. In this step, the scammer acquires a large amount of low-cap coins; he also makes sure that the coin must have very little market activity.
- Promotion: This scheme is never successful until scammers perform aggressive marketing. Their primary platforms are always social; some scammers even use paid advertisements. What they want to do is create hype or false demands.
- Price Surge: This step is the result of the above one. If the marketing works well, then many people fall into the trap; the coin price surges rapidly due to high trading volume.
- Dumping: This is the last step in the scheme. Once the scammer achieves the target and accumulates enough money, he will start to sell off their holdings. When a large amount of tokens is available in the market, the prices suddenly collapse and cause significant losses to investors.
Identifying Red Flags
If you do not want to become the victim of these schemes, you have to develop an understanding of specific warning signs.
1. Sudden Price Increases and Trading Volume Spikes
When you are listening to the news of specific coin price surges, react with two approaches. Why this coin is so abrupt, and why its trading volume hit records high without any fundamental news or development? In such schemes, the price of coins is always skyrocketing alongside the trading volume.
2. Lack of Genuine Value
The coins for such schemes have no practical value. The scammer’s selection is always based on obscure or minimal market nature because such coins are easy to manipulate.
3. Excessive Hype on Social Media
Without excessive promotion and marketing campaigns, these schemes are never successful. These scams are always operating on social media platforms with fake accounts or bots. The scammer’s main goal is to amplify the messages to mass audiences. If widespread illusion is developed, the schemer is successful.
4. Anonymity and Lack of Transparency
The scammers are operate behind the scheme, anonymously or under pseudonyms. This way they hide credibility, and they also want no one to track their activities.
5. Whale Activity
You always remember that in crypto trading the sudden influx of large buy orders always occurred with the following large sell orders. Sometimes sell orders create with time delays. The whale’s activities are never normal because they always move with detailed information.
Strategies for Prevention
Develop your understanding of warning signs. Due diligence and staying vigilant are the key skills for crypto trading. Your decision is based on real information, not hype or missing the lottery. Any currency can gain people’s attention, but based on factors that are relevant to growth, success, and practical application, always conduct research before participating in the hype.
