One of the drawbacks of every bullish cryptocurrency price rise is an increase in the incidence of cryptocurrency pumping and dumping operations. This phenomenon was observed once more in 2021. Bitcoin is now the most recognized one in the crypto asset class, with trading platforms, ETFs, and futures contracts.
At the very moment, many cryptocurrencies are functioning in a ‘wild west atmosphere. Some of them are pump & dump schemes. This article explains how to spot a cryptocurrency pump and dump scheme, as well as which currencies are most prone to be affected. Let us get started now!
How Cryptocurrency Pump And Dump Occurs?
Pump & dump methods have existed since the inception of the financial market. When the value of a sparsely traded investment, like a penny stock, is cheap, some individuals start buying. They then begin circulating favorable information about the cryptocurrency.
Most often, the good news is absolutely fabricated. The price of cryptocurrency suddenly rises as investors buy into it. After the stock has been completely pumped, the scam’s creator sells their interest to the purchasers who are still coming in. Because they possess a sizable portion, the price plummets. The crypto pump & dump occur in the same manner.
The crypto sector is still in its infancy. There are hundreds of exchange platforms, and creating a new coin is quite simple. As a result, it serves as a breeding site for highly volatile cryptocurrencies and con artists who may manipulate and dump such assets. Usually, these cryptocurrency operations begin with an organizer assembling followers in a closed online group.
To reduce financial surges, they will synchronize the purchase of the target cryptocurrency. When the influencers are prepared to inflate the asset and persuade the broader public to support it, they will post information about the deal with their online audience.
The organizers will then arrange the sale, for example, the dump, to ensure that everyone is paid, putting the ordinary buyers clutching the bag. The fact that organizers do not have to look really hard for sparsely traded virtual assets makes cryptos especially vulnerable to this trick. They may just make them. The only hurdle to launching a new virtual asset is a little study and coding skills.
In addition, freshly minted virtual assets are largely unregulated. An individual or organization can establish a token and make grandiose claims about its usage without fear of penalties if such statements end up being empty promises.
The truth is that it is simple to spot a pump & dump scam. that does not help crypto investors whenever the rug is yanked out from under them and these individuals are left keeping the bag. It is advantageous for individuals to recognize the warning indications of a prospective pump & dump scheme before it occurs.
Doing your homework is the initial step in preventing a scam. Do not jump in if you observe a pretty obscure coin being promoted by online strangers. Analyze the crypto token, then analyze its white paper and read it. Discover the people working on it and the goals.
Avoid Crypto Scams
It is better to ignore the coin if it has existed there for a long time but progress on the project appears to have stopped. If the initiative has a defined objective, claims excessive advantages, lacks a really well-developed path, or is affiliated with prior malicious people, these are all warning signs.
If you do not usually follow financial influencers, particularly cryptocurrency specialists, and suddenly the individuals you follow start chatting with you and ask to invest in a certain asset, that is a major warning signal. Consider why that influencer you admire is bringing up cryptocurrencies.
Be a part of a crypto platform having sections like crypto news today or crypto news tomorrow. Of course, a crypto platform may focus on the next day of the crypto world. If there is a doubt regarding a cryptocurrency, you can look for that from a reputable crypto platform. Such a platform will describe whether issues are arising with that cryptocurrency or not.
Look for the price predictions because even some popular cryptocurrencies tend to fail in the future. Pump & dump schemes generally get viral through social media. Try to avoid any new cryptocurrency from there.
Cryptocurrency pump and dump schemes show up from time to time. You may encounter them in your crypto journey. It is better to spend on the top popular cryptocurrencies. Some of these cryptocurrencies are Bitcoin, Ethereum, Litecoin, Cardano, USDT, Polkadot, Dogecoin, XRP, and Solana.
Any fan token may also get popular. But, you must be careful. New altcoins today could be dangerous tomorrow. You can analyze them for the long term from a reputable crypto platform. Do not invest in a cryptocurrency if you are sure that it is going to be a fraud scheme. That is the best approach.