Pump and Dump

What is a 'Pump and Dump'?

In the world of Cryptocurrency and Blockchain, the term "Pump and Dump" refers to a manipulation scheme that can result in significant price swings. A 'Pump and Dump' is a fraudulent practice where the price of a cryptocurrency is artificially inflated (the 'Pump') by spreading hyped-up, often misleading information, to lure in unsuspecting investors. Once the price has spiked, the fraudsters then sell off their holdings at the inflated prices (the 'Dump'), leading to a sharp drop in the currency's value and substantial losses for those who bought in during the 'pump' phase.

The 'Pump' Phase

In the 'Pump' phase, the person or group behind the scheme buys up large quantities of a low-valued cryptocurrency. They then spread false or misleading positive news to create excitement and urge others to buy the cryptocurrency. This results in increased demand, causing the price to skyrocket. The aim during this phase is to draw in as many unsuspecting buyers as possible.

The 'Dump' Phase

Once the price has been sufficiently 'pumped', the fraudsters move onto the 'Dump' phase. In the 'Dump' phase, they sell off their cryptocurrency holdings at the increased price. This sudden sell-off typically causes the price to fall dramatically. As a result, those who bought the cryptocurrency during the 'Pump' phase are left holding coins that are worth significantly less than what they paid for them.

Pump and Dump Schemes in Cryptocurrency Markets

'Pump and Dump' schemes are especially prevalent in cryptocurrency markets due to their relative lack of regulation and oversight compared to traditional financial markets. Investors should always be cautious when given investment advice that seems too good to be true, particularly in volatile and speculative markets like cryptocurrencies.

Protecting Yourself from Pump and Dump Schemes

So how can you protect yourself from 'Pump and Dump' schemes? Always do your own research instead of relying solely on the advice of others. Be wary of sudden, unexplained price jumps in a cryptocurrency. Check known cryptocurrency news sites for valid reasons behind any price spikes. If a 'Pump and Dump' is suspected, it would be best to avoid that particular cryptocurrency until the situation clears.