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Pump and dump in digital currency refers to the sudden increase in the price of a currency or its decrease in the market. In the pump and dump strategy, various media make extensive advertisements on the profitability of a specific currency to encourage users to buy currencies that are likely to be pumped.
Users will suddenly realize that the real price of the cryptocurrency was much lower than their calculations. The price of the cryptocurrency these people are looking for will drop sharply within a few hours and their capital will be lost. In this strategy, groups or people with different techniques artificially raise the price of a currency to get more profit. These people encourage users to buy that cryptocurrency with various actions and false advertisements.
Pump and dump is an illegal method and actually fraud in the financial markets, especially the cryptocurrency market. Due to the lack of a regulatory framework and regulatory laws in the cryptocurrency market, the pump and dump fraud model of digital currencies has attracted the attention of fraudsters.
Big and prominent shareholders increase their profits with the help of pump and dump strategy and market manipulation. By making exaggerated and misleading statements by abusing their popularity among users, these people convince people to invest significant sums in a particular project. In the continuation of this article, more about what is pump and dump? What is the pump signal? I will pay the currencies that are likely to be pumped and the whole pump and dump strategy.
What is digital currency pump?
Pump in the literal sense refers to raising the pressure and jumping. In the cryptocurrency market, a pump is a condition in which the price of a digital currency suddenly increases sharply.
This situation is caused by the efforts of companies or a group of people to artificially inflate the price of a cryptocurrency. The difference between the pump and the high volatility of digital currencies is that in the pump this price increase occurs artificially. The initiation of the pumping process often occurs with the purchase of market whales.
To create a pump, banks, big investors and powerful people buy a digital currency. After the whales make significant investments in low-priced currencies, a team under their management makes extensive and exciting promotions. By deceiving inexperienced users and newcomers to the cryptocurrency market, this team traps these people.
With users’ trust in a currency and its future, they encourage other people to buy it through false advertisements of influencers, etc. In this way, according to the law of supply and demand, the price of the considered digital currency will increase sharply. The bubble and emotional growth of a currency is called pump due to this strategy.
What does digital currency dump mean?
Dump literally refers to emptying. In the cryptocurrency market, the situation in which the price of a cryptocurrency drops suddenly and sharply is called a dump. In a dump, usually people who have already bought a cryptocurrency sell it quickly and at the same time. Therefore, dumping can cause severe losses for people who have digital currency portfolios.
In fact, the dump occurs after the pump. In this process, when the value of a cryptocurrency reaches a high limit, whales withdraw their capital from the market at once.
Whales make a lot of profit by selling the digital currency that has gained a lot of value. With the withdrawal of whale capital from the market, based on the same process of supply and demand, the supply in the market will increase sharply and the price of the currency in question will fall.
The process that occurs after the pump by selling currency by whales is called DUMP. Skilled people quickly withdraw their capital from the market when they see a drop in the price of a cryptocurrency to avoid losses. In this process, the users who were fooled by exciting and false advertisements will suffer a lot of financial losses due to the loss of their capital.
What is the pump and dump strategy?
In digital currency pump and dump strategy, a group of abusive and influential people buys a low value asset in large volume. The second team, which is in charge of pump and dump advertising, encourages people to buy that currency through social networks and other methods.
These scammers use influential influencers to spread false content about tokens. Traders and investors, fearing to lose the opportunity to buy with the increase in the price of tokens, rush into the market and buy tokens more than their actual price. With the fraudsters selling all the tokens, the demand suddenly disappears and the price drops suddenly.
The goal of these people is to create large changes in the market in a short period of time, so that ordinary and novice investors take actions for the benefit of people involved in pump and dump with emotional actions. In many cases, digital currency pump and dump fraudsters target new and undesirable currencies;
Because manipulating them does not require a lot of money. For example, fraudsters may rarely think of pumping and dumping Bitcoin, because pumping and dumping Bitcoin requires very high capital. Initial Coin Offerings (ICOs) can be the target of scammers to attract more regular users from pump and dump.
Once upon a time, pump and dump strategy was done by phone and corporate call center, like in the movie The Wolf of Wall Street. But today, pump and dump strategies are going forward using trading robots and the internet.
But the underlying strategy of all of them is similar;
- A currency is bought with a low transaction volume.
- Advertising and potential returns in social networks about its technical potential
- Waiting for other people to enter is misled by the invitation of users
- Selling property at a time of increase in price, by fraudsters
Pump and dump detection method of digital currency
Familiarity with currencies that are likely to be pumped and fundamental analysis can make it much easier to identify pump and dump projects.
Read more: Fundamental Analysis
If you see the price trend of the currencies on which the pump and dump strategy is implemented on the chart, you will encounter their similarity in a sudden increase and a drop in price.
Therefore, it can be said that pump and dump projects can be identified from the diagram even for beginners. It may be interesting to know that the volume of transactions in these projects is usually very low for a long period of time before the price increases and suddenly increases.
Below I point out the methods of knowing the digital currency pump and dump strategy:
Research before any investment
Before any investment, do a thorough review of the token in question. In this way, you will notice the unusual trends in the market. At the time of investment, make sure of the extent of your source. This point is effective in preventing the loss of all capital in digital currency pump and dump scams.
Your sources should not be limited to social networks only. Because extensive advertisements can create an atmosphere of excitement among users. You should invest in digital currency with confidence through reliable digital currency sites, see digital currency pump news and pumped currencies today.
Hesitation to buy after seeing a sudden increase in the price of a currency
If you see a decrease in the value of a cryptocurrency at the same time as it is widely advertised, avoid buying it. Because if the price of an asset suddenly increases and it seems unusual, there will be a possibility of pump and dump. In most cases, the increase of a few percent of a currency in a short period of time seems illogical and the market situation should be further analyzed.
Avoid making emotional decisions
Be emotional when investing in cryptocurrencies. Although it is possible to advertise a cryptocurrency, there are actually dozens of other currencies. Therefore, avoid buying on impulse without sufficient research. Be sure that there is always an opportunity to make a profit and the possibility of losing capital is high if you make an emotional decision. In fact, not giving in to the feelings of FOMO is one of the ways to avoid becoming a victim in digital currency pump and dump.
Digital currency white paper review
Before buying, you should read the white paper of the token to make sure that its continuous activity and business operations are real.
Lack of trust in advertising
Advertisements or social media may advertise events that are not actually happening. This could indicate false advertising prior to the initiation of a pump and dump scheme. Most of the time, fraud projects such as Ponzi scheme and digital currency pump and dump are accompanied by many advertisements to attract public attention. Therefore, never risk your capital because of advertising campaigns.
Read more: Ponzi Schema and how to spot a Ponzi scam
Which currencies are likely to be pumped?
All cryptocurrencies can be pumped and dumped. But in the meantime, cryptocurrencies that have a high market value and volume are hardly affected by this fraud. For example, in order for the Bitcoin market to pump and dump, whales must inject millions of dollars of capital into the market and withdraw it suddenly. To participate in large markets such as Bitcoin, a large capital is needed. The smaller the size of the market, the easier it will be to disrupt it. Therefore, inexperienced people trust these currencies.
Therefore, the price and currency of digital currency is another important factor for identifying currencies that are likely to be pumped. Because it is difficult to manipulate currencies that have a high volume and market value, and their purchase requires a lot of capital.
For this reason, currencies with a low price and market volume are often targeted by pump and dump fraudsters. It may be interesting to know that some digital currencies are even listed in reputable exchanges such as Binance, but after it is determined that the project is Pump and Dump, they are removed from the list.
How to make profit from digital currency pump and dump
If you detect Pump and Dump schemes, you will be able to make profit and use this opportunity. Below I mention the method of earning profit from digital currency pump and dump:
- Follow the highly promoted token. This token can be a new token or already available in the market.
- Follow the price closely until it reaches its peak. Once the peak price is reached, sell the token immediately. Never wait for the token to start going down; Because it is possible that this process will be very fast and you will incur losses.
Which markets are prone to pump and dump?
Some people, based on their misconception, think that pump and dump only happen in the digital currency market. But it should be known that this method of fraud is not limited only to the field of cryptocurrencies. But due to the attention and popularity of digital currencies, the cryptocurrency market has become a suitable platform for pump and dump fraudsters.
Many people enter this market daily, without having received digital currency training and having sufficient knowledge in this field. Therefore, fraudsters can easily increase the price of a token astronomically with a targeted program and extensive false advertising.
Uninformed people who buy these tokens with the aim of making huge profits and without considering the financial risk , are unfortunately only prey for digital currency pump and dump fraudsters. Therefore, before any investment on unknown tokens, you should do enough research or get help from experienced people in this field.
Read more: Learning to invest in digital currency
Uninformed people who buy these tokens with the aim of making huge profits and without considering the financial risk , are unfortunately only prey for digital currency pump and dump fraudsters. Therefore, before any investment on unknown tokens, you should do enough research or get help from experienced people in this field.
Currencies that are likely to be pumped include currencies with low market value, unknown targets, low audience, and traded in low-reputation exchanges.
A digital currency pump signal is a message designed to encourage users to buy a cryptocurrency so that they can make a profit by manipulating the price of the cryptocurrency due to a sudden increase in demand. After the price increase caused by the pump, when the pump signal is issued, the members start selling with a good profit.
In the financial markets, the artificial inflation of the price of a currency and buying by large groups is called a pump, and the sudden sale and emptying of small investors’ feet is called a dump.
