Last updated on December 9th, 2024 at 10:29 am
Do you desire to know what a crypto pump and dump scheme is and how it influences 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 the Crypto Pump and Dump Scheme?
There are 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
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:
The value of a token is artificially inflated by the use of marketing and influencer activities to attract investors, and then the overvalued asset is sold at a profit, which removes liquidity and crashes the price. The wider adoption of cryptocurrency has increased the manipulation of scamming activities for unsuspected investors.
Pump and dump schemes can be dated back to the traditional financial system of the South Sea Bubble in the early 18th century, when top figures like the King of Great Britain, George I, and Isaac Newton’s were also victims because they bought stocks of the South Sea Company during its pump and it crashed in 1720. Although the pump and dump scheme has evolved, according to Chainanalysis, for every new token launched in 2022, 24% had signs of being a pump and dump scheme.
Example of Pump and Dump
Pump and dump are coordinated by people 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.
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. 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 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 was a full-fledged pump and dump project, the coin reached $250 million Coinmarketcap, but still the dump came, and the group sold all the tokens, leaving investors bewildered.
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 and minimize risk.
