If you’ve ever heard of the term “pump-and-dump” about cryptocurrency, you may wonder what it means and how exactly these scams work. A pump-and-dump scam is a fraudulent set of activities that happen within the crypto markets, usually involving Bitcoin or any other altcoin, where a group of malicious actors tries to falsely inflate the price of an asset using manipulative trading tactics. This post breaks down what happens during a pump-and-dump scam, how to prevent them, and why understanding their inner workings is more crucial than ever for investors navigating these volatile markets.
How Does it Work?
The pump-and-dump scam begins with malicious actors, typically called “pumpers” or “bagholders.” These individuals buy a large amount of a low-priced crypto asset to inflate its price – usually through automated trading algorithms (commonly referred to as “bots”). Once the asset price increases, these same malicious actors spread false information to drive up the price further.
You can do this through social media posts, online forums, or other outlets where they falsely proclaim that the asset is a “sure-fire winner” and that investors should buy it before it’s too late.
Once the asset price has risen significantly, the malicious actors dump their shares for a profit and leave other investors holding an overvalued asset that plummets in value. This “pump-and-dump” sequence generally takes less than an hour to complete and can leave unsuspecting investors with heavy losses.
How to Avoid Pump-and-Dump Scams
The best way to avoid becoming a victim of a pump-and-dump scam is to be aware of the signs and exercise caution when dealing in the crypto markets. Be sure to research any asset before investing, never take advice from unknown sources, and be wary of overly optimistic claims about returns or sudden drops in prices. If you notice that the price of a given asset is rapidly increasing or decreasing, take some time to investigate before investing any funds.
Additionally, it’s important to remember that not all pumps and dumps are malicious, and many can be legitimate market movements driven by actual trading activity. However, it is always best to proceed with caution until you can confirm the legitimacy of the market movement. It also helps to diversify your portfolio by investing in various assets; this way, if one asset does suffer from a pump-and-dump scam, your losses will be somewhat offset by any gains you may have made on other investments.
What to Do If You Have Fallen for a Pump-and-Dump Scam
If you’ve been the victim of a pump-and-dump scam, it’s essential to stay calm and not panic. These scams are only temporary, and the asset will eventually recover and regain its true value over time. The best thing you can do is to report the scam to the relevant authorities and take note of any losses you have incurred. This way, if the perpetrators are ever brought to justice, you may be able to recoup some of your money. You can hire investment fraud lawyers to help you seek compensation for any losses you may have suffered. The sooner you take action, the more likely you’ll be able to recover your money.
Pump-and-dump scams are becoming increasingly common in the crypto markets, so investors need to know how they work and how to avoid them. Always exercise caution when investing in any asset, and never take advice from unknown sources. If you fall victim to a pump-and-dump scam, report it and seek legal help to recoup any losses. By understanding the inner workings of these scams, investors can protect themselves and their portfolios against malicious actors looking to make a quick buck.