Do you desire to know what is crypto pump and dump scheme and how it influence the crypto space.
Then, you need to read through this article!
Pump and dump is an age-long strategy derived from a stock market that involves investors choosing low-liquid assets with low cost to artificially accelerate the price. There are different perspectives on the strategy, some consider it a scam while others take part as an investment.
What is Crypto Pump and Dump Scheme?
They’re several strategies for the trading of digital assets and it’s divided into three, namely:
- Trading based on technical analysis
- Trading based on fundamental analysis
- Trading based on psychology
The third one is a typical pump and dump trading, where investors consider the participant’s action. A lot of people considered this a scam, although pump and dump are artificial price growth due to group actions of participants and then price collapse.
Concept Behind Crypto Pump and Dump
It’s an organized effort to popularize a given token to a certain price by the developers and then collect the profits after the sale of the coin.
Here’s how this scheme is organized:
Crypto pump and dump scheme is act of artificially inflating the value of a tokens with marketing and influencers activities to attract investors by selling the overvalued assets at a profit and then remove the liquidity to crash the price. The wider adoption of cryptocurrency has increased the manipulation of scamming activities to unsuspected investors.
The perpetrators dump their token when the supply has increased as the prices decreases and the prices of the assets will never recover since the have little or no value while investors will be stucked with a worthless token and the fraudsters count on their loots. Although pump and dump scheme can be dated back to the traditional financial system of South Sea Bubble in the early 18th century.
When top figure like the King of Great Britain, George I and Isaac Newton’s were also a victim because the bought stocks of the South Sea Company during it pump and it’s crashed in 1720. Although pump and dump scheme has evolved, for every new token launched in 2022, 24% has signs of being pump and dump scheme said Chainanalysis.
Example of Pump and Dump
Pump and Dump are coordinated by people (organizer) to gain more participation and then withdraw their holding. Here are some examples of pump and dump projects:
1. Squid Game
Squid Game used Netflix to get mainstream coverage but the anonymous creator had other ulterior motives to scam investors after the assets peaked at $2800 by selling off their holding, shutting down the project website, and making off with millions of dollars.
This project was launched in presale on October 20 2021 and priced at just over a penny but skyrocketed within a few weeks hitting close to $40. It’s currently sitting at around $0.005 after its founder pumped it into thousands and sold it off.
This is a common trait in the cryptosphere and it’s called rug pull which means the pumping of new coins to cash out immediately by developers. Since there’s no more liquidity then the crypto tank and all investment becomes worthless. Squid generated a lot of mainstream coverage but with the obvious red flag, its domain is SquidGame.Cash and was developed shortly before launched.
The use of Squid Game was unauthorized. Coinmarketcap warned investors on listing that the project doesn’t allow users to sell their Squid for real money. There was a feature because the anonymous founder confirmed that the built an anti-sell-off strategy into the asset. To restrict large investors from pumping and dumping the asset. Squid Game was a scam from the onset and not a case of bad investment in which one of the major media houses promoted carelessly.
2. SushiSwap
SushiSwap was clear to experienced traders to be a scam considering just a few days it was listed on Binance and then crossed the dollar mark. SushiSwap is an automated market maker on the Ethereum network and offers users incentives to provide liquidity through the SUSHI token.
SushiSwap experienced spontaneous growth with eleven days of protocol launched and over a billion dollars locked. Things took a twist when the anonymous founder decided to sell all the tokens in one fell swap and convert all to Ethereum.
However the community behind the token as a way of getting their pound of flesh decided to campaign on Twitter against the project and the founder was forced to deposit the token back into the project.
3. Ethereum Max
Ethereum Max was a project one would least expect to be a scam considering the influence Kim Kardashian and Floyd Mayweather wield. The company had paid them to promote the project and they gave the assets a massive acceptance.
Unknown to the public they were paid for this promotion, it’s was a full-fledge pump and dump project although the coin reached $250 Million Coinmarketcap but still the dump came and the group sold all the tokens with investors left bewildered.
However, one whale investor by the name of Ryan Huegerich refused to bulge and he sued Kim Kardashian, Floyd Mayweather, and the team. Kim agreed to pay over a million as a penalty and promised to refrain from crypto for the moment.
Conclusion
Investors should be cautious about new projects by choosing a strategy and sticking to it. This way investors can only invest in projects they are satisfied with.
FAQ
Do crypto pumps and dumps work?
Pump and dump schemes are crypto scams promising ridiculously high returns. These scammers leverage psychology to trap victims, playing on their emotions by dangling a carrot.
Is it illegal to make a pump-and-dump crypto?
Pump and dump are illegal under securities law but are also tremendously famous in the world of cryptocurrency, Blockchain technology, and digital assets.
Are Telegram crypto pumps real?
Pump groups are one of the oldest scams in the crypto book. They generally take the form of Telegram channels in which the owner or an administrator attempts to coordinate price manipulation on a cryptocurrency exchange.
