Within the financial markets there are various types of unethical schemes or strategies that are used by investors with large capital who seek to take advantage of other smaller investors or who invest occasionally, unfortunately some of these schemes are being used within the Cryptocurrency ecosystem for the same purpose.
Within this group of unethical strategies we can find the scheme of “Pump and Dump” which in the field of the Cryptocurrency ecosystem, this strategy is really not as complex as it may seem, it is represented by 3 characteristics or patterns, the first is to have a relatively normal Cryptocurrency with some other “novel” characteristics, the second factor is to have with a group of “influential” personalities or who have a community that supports them, be it celebrities, artists, influencers or well-known people, and finally, the third factor is generating publicity or advertising the currency through different means.
With these three factors the Pump and Dump scheme is created, which once started is only a matter of time to take advantage, like many other schemes, this strategy seeks to enter a considerable number of users or investors in order to achieve greater Profits.
The Pump and Dump dynamic is simple, the first thing that is created is a functional Cryptocurrency that has striking characteristics but nothing exaggerated, generally within its white paper or white paper they present some functionalities that “will be added shortly” and that will revolutionize the market with such features, these things serve to attract the attention of less experienced Crypto users or those who get carried away by FOMO.
Once the Cryptocurrency in question has been created, the organizers of the Pump and Dump look for recognized personalities from the Crypto world, or even outside of it, such as influencers, artists, among others. The idea of doing this is to give the currency visibility and make that FOMO is created around it, which encourages small investors and inexperienced users to think that it is going to be a Cryptocurrency with rapid and lasting growth.
The next step is simply to wait, and you will ask yourself “really? Just wait” and it is that the Pump and Dump system consists of carrying out the previous steps in order for a Cryptocurrency to revalue in a matter of a few months, in order to sell a large batch of the currency when the price is inflated for the investments that small investors have made in such a short time.
For example, at the beginning, when the scheme is being organized, the value of the coin is $0.001 and if a person who is part of the scheme invests $100,000 in this Cryptocurrency, they will have around 100 million of this token, but if after a few months and due to the investments of a considerable number of small investors, the coin raises its price to $0.1, and it is when the “Great Investor” most likely decides to sell his 100 million tokens, in this way we can say that he has earned 10 million of dollars just risking 100,000.
Many will say “but nothing happens, since the Cryptocurrency will continue with its price of 0.1” because it does not work this way, because once the market capitalization falls, the price of the coin falls drastically, thus harming everyone. those who invested when the currency was growing in a certain way.
Something that should be noted is that although it is true that sometimes the currency is created from scratch to carry out this type of act, we can also find cases where they use an already created and evolving project in order to use it to carry out the Pump scheme. and Dump, just as not all celebrities who promote Cryptocurrencies are part of a scheme or something similar, although it is true that this scheme is used within the Cryptocurrency ecosystem, it is rare and they generally make use of “New and Innovative projects” in order to profit.
Something that many ask is how to avoid being part of a Pump and Dump scheme and the answer is simple, no Cryptocurrency is magic and it will make you rich overnight; The target audience for these types of unethical tactics are those who are eagerly seeking a quick and substantial return with little investment.
Thanks to this type of mentality, the developers of this practice get great returns at the expense of many, to avoid this type of schemes, at Ccoins we recommend the following:
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Actually, yes, but in this type of case, we are not talking about a new currency and its great benefits, but about an already existing currency that is “forecast that its price will increase in the coming years” and in this way they manage to get investors to enter and buy the currency, making its price rise inorganically to proceed with the Pump and Dump.
Of course it is not legal, in many countries there are commercial regulations that punish cases of manipulation of any type of market, therefore this type of activity can mean penalties that can even lead to jail.
It is really not advisable to make investment decisions based on the word of a celebrity or influencer, since most of these are not experts in investment issues in volatile markets such as Cryptocurrencies, the best thing we can do is make our own investment and rely on in what we can analyze ourselves.
