Crypto pump & dump schemes what are they? | InfoTechBlogging

Pump and dump groups are increasingly becoming problematic in the blockchain field. Even though Cryptocurrencies and blockchain are relatively new to the financial world, they are vulnerable to the same kinds of schemes and scams that have overwhelmed paper markets for centuries – plus some recent ones.

The most common variation of a scam that you are likely to come across is the great pump-and-dump. This low-volume and synchronized push have since been illegal on regulated Cryptocurrency exchanges. However, in the wild wasteland of cryptocurrency, every abrupt rise and fall made by pump and dump schemes are suspect.

Social Science Research Network

Researchers recently conducted a study at the social science research network (SSRN) and identified about 4,818 cryptocurrency pump and dump schemes in six months. The collaboration involved universities in the US, Israel as well as Mexico doing research as well.
The researchers implemented a comprehensive data collection strategy that focused mainly on discord and telegram. These popular social messaging applications are used by scammers to attract thousands of gullible investors frequently. The research results went on to indicate that vague and low cap coins gained an average profit of 23% through Discord. Compare that to a meager 3.5% using any of the 75 coins.

What are the pump and dump schemes?

Cryptocurrency pump and dump is a situation whereby a group of individuals tries to profit massively from an asset by pumping it. What ‘pumping’ means essentially is to purchase a large amount of cryptocurrency to instigate the rise in the price of a specific coin falsely. In this way, pumpers benefit from the basic supply and low demand. So it means that if the demand for something increases, the price will often increase as well.

Scammers usually pump and dump cryptocurrency just because they are not like traditional financial assets; they are frequently traded. Price movements on one exchange can have a significant effect on the entire market. Pumpers usually go for unpopular altcoins that don’t require a lot of investments to influence the price. For instance, you need to pump Bitcoin infinitude to provoke another bull run, but even $1,000 is enough to speculate on some new cryptos successfully.

How do the pump-and-dump schemes work?

At the core of a pump-and-dump scheme lay a group motivated and efficient actors, working privately and often via messengers such as Telegram. This internal core of investors chooses an exchange and a particular coin to target. The coin needs to be low volume preferably. This will allow the actors to catch much of its existing liquidity and dictate its price in relatively small exchange.

This inner core can only do so much alone to drive up the particular coin’s price. This is where the outer core comes into play. The purpose of the outer core is to shill unwary investors into buying in. Back then this would occur by word of mouth and fake tips from telephone operator’s ‘boiler rooms’. With the likes of Reddit, twitter and facebook nowadays, word of mouth is spread digitally. There have been some accusations against some famous crypto figures of accepting payments to professionally shill for a coin knowing that a pump-and-dump was underway.


When a time for the pump has been fixed, all actors begin to buy in. The price then rises, and its liquidity falls into the actor’s lap on a silver platter. The unsuspicious group at the fringes, or the people who fell for the social media hype, see the coin escalating in a sea of green. This prompts “FOMO,” and they climb on board, afraid to miss the ride. That drives the price up even further, increasing its gravitational pull to totally unsuspecting investors. It can difficult to run from a relatively anonymous coin posting high gains relative to its fellows.

When the inner core agrees that enough is enough or the target price has been reached, the dump starts. The inner core first sells its coins quickly. The outer core then does the same. The investors not involved in the scam are left ‘holding the bag.’ If they do not promptly sell off, they will be stuck with a bunch of coins purchased at sitting on piles of coins bought at falsely inflated prices. Such practices do not only damage the investors but also destroys the integrity of the particular coin and the exchange where the scam took place.

Stay safe from the pump and dump schemes!

Stay Away from Low Liquidity Coins

Other investors promote the trading of low cap coins with large run-ups in price that might be a profitable scheme when you know exactly what you are doing. However, traders with more experience may say that it is less challenging to invest in low volume assets than to pull out. If you do choose to speculate on low cap coins acknowledge the high risk.

A general rule is to avoid coins with daily volumes of less than $100,000. The bar is quite low in cryptocurrency, and that number could even be too aggressive. Bitcoin might seem boring compared to other coins, but there’s a reason why it still stands after ten years.

Final Thoughts

Pump and dump groups are a problem that needs to be addressed. Investors need better security to want in for the long run. This is mainly because cryptocurrency is not regulated, even though steps are being taken to fix this.

While a lot of coins will go down to zero, the basics behind Bitcoin and several cryptocurrency projects stay firm.

Generally Crypto isn’t going anywhere and self-education is your greatest tool when navigating such risky waters. Ensure you do not remain to hold the bag or rather to use the bag as a lifeboat.

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