Pump and Dump (P&D) Scheme

As cryptocurrencies gain popularity, it is essential for newcomers to understand various schemes that can potentially harm their investments. One such scheme is the Pump and Dump (P&D) scheme, which has become prevalent in the crypto industry.

A P&D scheme involves a group of traders who work together to manipulate the demand and price of a specific cryptocurrency. The goal of these traders is to artificially boost the trading volume and price of a chosen coin, often focusing on coins with low trading volumes.

Let’s dive deeper into how a Pump and Dump scheme works:

The organizers of a P&D scheme carefully select a particular coin and target a specific exchange for their activities. Once the chosen coin and exchange are decided, the traders start their coordinated action.

First, the organizers of the P&D scheme accumulate a significant amount of the chosen coin at a relatively low price. They spread false information or make exaggerated claims about the coin’s potential to attract the attention of other traders.

When the price of the targeted coin starts to rise due to the increased demand generated by false expectations, many unrelated traders are attracted to the coin. This surge in demand causes the price to skyrocket rapidly.

Meanwhile, the organizers who initiated the scheme start selling off their accumulated coins at inflated prices, realizing substantial profits. They carefully monitor the price movement and exit the market once a specific price target is reached.

Once the core organizers sell their coins, the price of the targeted coin experiences a significant decline. This decline can be sudden and steep, leading to substantial losses for traders who fell for the false expectations and bought the coin at the inflated prices.

Pump and Dump schemes often involve communication and coordination among the participants. Platforms like Discord and Telegram are commonly used for discussing the plan, spreading false information, and executing the scheme effectively.

It is crucial to note that Pump and Dump schemes are illegal in regulated financial markets and considered fraudulent activities. However, in the largely unregulated cryptocurrency market, these schemes persist and can lead to significant financial losses for unsuspecting traders.

According to the Wall Street Journal, P&D schemes in the cryptocurrency market accounted for $825 million in trading activity between February and August 2018. This staggering number emphasizes the prevalence and financial impact of these schemes.

Traders should be cautious and educate themselves about the risks involved in trading cryptocurrencies. It is essential to conduct thorough research, rely on reputable sources of information, and avoid falling for unrealistic expectations generated by Pump and Dump schemes.

While cryptocurrencies offer exciting investment opportunities, it is crucial to be aware of the potential pitfalls. Understanding the mechanics of schemes like Pump and Dump can help protect investors from falling victim to fraudulent activities and make informed decisions.

By staying informed and vigilant, traders can navigate the cryptocurrency market safely and avoid being lured by false promises and manipulative tactics employed by unscrupulous individuals.