Friends, we continue "IQeon ABC" section, where our team explains complex concepts from the world of digital assets in simple words. Today we will talk about Pump and Dump.
The Pump&Dump scheme first appeared on the stock markets, however, stock prices manipulation can trigger decertification and even bring participants to criminal responsibility. In an almost unchanged form, Pump and Dump migrated to the digital asset market.
How does this scheme work and how to avoid becoming its victim? Let's discuss it.
What is Pump and Dump?
In simple words, Pump&Dump is a manipulative scheme for increasing the cryptocurrency rate with a subsequent price crash. Large investors artificially “pump” the asset’s value, and then “dump” it, they sell currency to small market players at the most expensive price. As a result, the price of a coin or token decreases, and investors lose funds.
How does Pump&Dump work?
Pump and Dump scheme always has a group of organizers. After they choose certain coin, traders begin to buy slowly, not to provoke an early rate rise.
After the first stage, the asset starts to be “pumped up” with the help of buzz in instant messengers, social media accounts, and exchange chats. People announce a rapid rise in the rate and name the trading platform, where organizers place large buy deals through the bots, raising the asset's value.
Then they start to warm up small investors: wherever possible, organizers post false news stories about partnerships or project update reports, which attracts third-party investors who independently influence the growth of the exchange rate. As a result, the price grows, the organizers sell tokens at an inflated cost, after which the cryptocurrency rate goes down again, and sometimes drops to zero.
How to recognize Pump&Dump pattern?
How to protect yourself from the assets’ Pump and Dump?
Remember: you always have to pay the piper. Don’t chase easy money and double-check everything – this is the best defense against any fraudulent schemes.
Now you know what Pump and Dump are and how to protect yourself from this scheme. Join our official Telegram community – there are many interesting articles ahead, in which everyone will find something useful!
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