Forewarned Is Forearmed: The Impact Of Pump-And-Dump Schemes In Cryptocurrency
The current global financial system is inevitably headed to the future domination of cryptocurrency given the fiat’s collapsing power and the current coronavirus crisis. As the dreamt mass adoption has a long way to go still with all the education and regulation that must take place, as it is already taking place in certain countries, fraud, theft, and scams keep hounding the fledgling asset class and seemed bound to stay and feast on unsuspecting traders and investors, to the detriment in crypto market trust.
While learning the ways of crypto trading, it is equally important to listen to what the devil’s advocates are saying. Sometimes they have one warning or two that are worth heeding, and we could thank them for that.
One is the pump-and-dump scheme.
P & D
Pump-and-dump fraudsters organize themselves into a team whose goal is to artificially inflate the price of a crypto asset using false statistics and misleading information via ads and promotions using different social media platforms. They do this by buying together a low-priced asset, which will prompt its market price to rise. The sudden increase in the asset’s nominal value will reflect a bullish reading that will cause gullible traders to participate and start buying the said asset. Upon reaching a desirable price, the fraudsters will start selling or dumping the assets and running away richer many times over. Duped traders can end up losing their entire investment without hope of recovery with this fraudulent kind of supply-and-demand scheming.
Fraudsters at Work
It all starts with the organizers shopping for a potential coin and an exchange to perform their scheme. The idea is to pump up the market volume of the coin, which must be low so that they can lock up all the available liquidity as much as possible. By doing this, they can control and increase and then fix the coin price. After which, they can now dump or sell their assets. All participants are tiered, with the organizers who are insiders occupying the top, obviously, to get the most of the profit since they know when the P & D will happen. Those ranked lower, or the outsiders won’t stand a chance.
Timing Is Key
P & D token price can start increasing around five minutes before a P & D activity begins, which is anywhere close to 5%, coupled with an unusually high volume. Select investors can buy in advance since they receive pump signals as premium members. These insiders are the ones who will benefit great returns calculated to be as high as 18%. Those who are able to trade within 10 minutes after the P & D started has a 13% chance. Outsiders who do not know when the time of the P & D are bound to lose more than 2%. If ever, you need to buy and sell quickly in seconds to gain. A minute you are late, you lose.
Stay Away From The Sway
Emotional traders are usually the first ones to get swayed by fantastic promotions in the hope of getting a big chunk by a seemingly great opportunity to earn big bucks quickly or regret missing it. Emotions are a very unreliable way of reading the market or uncovering any truth or untruthfulness of any crypto ad. Have a nose for news on the latest in cryptocurrency trends, together with substantial market research, can give you enough leverage to make a wisely informed decision. It will be fairly easy for you to flag any potential pump-and-dump schemes.
“We Tried To Warn You.”
Before jumping waterfalls, it is best took around for telltale signs of a potential pump-and-dump scheme. Not all are here, but some can already be of great help to you.
1.Get to know the team or the company behind the promotion. Track record is important, and any encounter with the US Securities and Exchange Commission at any time can cast doubt as to the legitimacy of the current promotion.
2. Abort any purchase once you discover that the asset’s value is unusually shooting the rafters while the advertising promotion is hot on track. They must not go together, or something is being cooked.
3. False advertising is what usually precedes a scheme. Events of magnitude promoted heavily are not actually happening.
4. If the company is not in for some legit business operation, you can simply conclude that they are out only to parade themselves as legit as only to lure.
5. Unscrupulous individuals hide under many disguises. A frequent change in management, business type, or even a company’s name is a sign of bad business.
Pump-and-dump schemes were all-time high during the ICO times, and we still need to be wary. This price manipulation can make investors lose money. P & Ds are illegal in the stock market, as the US Securities and Exchange Commission deems it so. The problem lies in the cryptocurrency market, where investors lay prey to different schemes without the protection of a law or regulation. Since cryptocurrencies are traded on a global scale, it calls for a globally-coordinated regulation to make it work. This is a very difficult and complex thing to do. In the meantime, regulation at the exchange level can matter. It can drive token price up and liquidity on the exchange that bans it.
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Forewarned Is Forearmed: The Impact Of Pump-And-Dump Schemes In Cryptocurrency was originally published in The Capital on Medium, where people are continuing the conversation by highlighting and responding to this story.