Crypto Pump & Dump Scams – A Quick Guide
Crypto pump and dump (or a “rug pull”) is a scheme in which fraudsters use misleading data in order to increase the value of a cryptocurrency.
This causes the currency to go on the market for a lot more than it should, and many people will be unaware of the consequences. This is called the ” Pump Phase.”
The ” dump phase ” is next. During this time, scammers will sell all of their crypto and disappear the victims' money.
A few indicators can be used to help identify a pump-and-dump scheme.
- Unknown cryptocurrency receives a lot of attention on social media
- Influencers and celebrities are often behind new cryptos, using related scripts.
- The charts show that a sudden price rise occurred in a crypto project.
- There is very little documentation available, despite the hype.
You can read the entire article below to learn more about cryptocurrency pump-and-dump schemes, and how you can protect yourself.
The topic of crypto-pump and dump has become a major issue in crypto and finance. You can find many examples on social media but often they disappear quickly.
To get scammers to sell the crypto, they will make misleading statements and convince people to buy lots. After they have their victim's money, the scammer will sell his coins and disappear.
This article explains what crypto pumps and dumps are and how they operate. How to recognize and Prevent them .
Are Pump-and-Dump Crypto Scams Real?
Although the role of crypto and social media in these scams is relatively new, the fraud itself isn't. This has been happening for years.
Many years
There are many investment options available, but stocks is the most popular.
This scam works by misleading others with false information. The scammer then waits for the stock to reach a sky-high price.
They then sell whatever stock or security they've bought. They then disappear along with the money of their victims. This has been happening more often with cryptocurrency in recent years.
Because cryptocurrency is largely unregulated, this can be a “safe” and easy way for criminals make a living. They can also be sold anonymously.
This was evident in the case of last year, the $SQUID Game Coin. is named after Squid Game and it's one of the most popular Netflix series. The coin had no connection to the show in real life, but it created a lot of buzz.
In a very short time, it soared from less than a cent up to $2800. It dipped to just a few cents shortly after reaching that high level. These scams can be used to defraud you, and all crypto-investors.
Do you prefer a rug pull or a crypto pump-and-dump scheme?
Another term used to describe these frauds is “rug pulling.” Both rug pulls, pumps, and dumps are all synonyms for the same thing. This is the act of literally pulling the rug out from underneath investors and causing them to lose their investments.
This is exactly what this fraud does. Investors believe they are getting in on a great investment but the entire thing soon crashes and all their investments disappear.
What is the origin of Crypto Pumps and Dump Schemes?
While it is not often the case, cryptocurrency pumps and dumps scams are usually started on social media platforms like Facebook, Twitter or Instagram. These scams are often started on Discord.
These scams are based on creating lots of hype and curiosity about the new cryptocurrency. It is easier than ever to achieve this goal with convincing social media posts and messages.
Scammers promise rapid growth, and often lie to the public about the purpose of the cryptocurrency and the people or entities associated with it.
Bad actors may also be able to get influencers and others with a substantial social media presence onto their team. These people might be paid to promote crypto. It will cause a lot more hype or, at most, interest.
Many will find the above enough to cause serious FOMO fear of missing out (fear of missing something). The scammers will then be set in motion by them buying a few (or many) coins.
How to recognize and avoid a crypto pump and dump scheme
This section will focus on how you can recognize cryptocurrency scams. Awareness is key in preventing these scams.
This is social engineering fraud. These scams are based on convincing their victims that they should take action. This eventually leads to them being conned. This is how you can recognize scams like crypto pumps and dumps.
The hype is building for new cryptocurrencies
If you notice a brand new cryptocurrency suddenly getting lots of attention, be cautious. Make sure you verify the date of the coin's creation and read the whitepaper for details about the issues it might solve.
It is understandable that people would like to be the first to ” Discover“, a brand new cryptocurrency coin. This will allow them to get the best possible rewards and ensure they are among the very first to receive the coins. This can sometimes be against you.
You should research before you decide to invest in a cryptocurrency.
Influencers and celebrities incessantly promote cryptocurrency
Ask yourself what your motivations might be whenever you hear someone talk about cryptocurrency. Celebrities and influencers don't really know anything about cryptocurrency. They'll hype up something if they're being paid for it .
It is highly unlikely for the influential celebrity to be backing the project. It is common for these celebrities to be paid in crypto or fiat currency for every post they write or hype that they create.
There are not yet any strict laws to deal with this kind of scam in most places around the globe. This is why celebrities and influencers can do it without being prosecuted.
So, be cautious when celebrities and influencers promote unknown crypto projects. It's possible that they don't know they are part of a fraud, which makes it difficult for them to be punished.
A large reward to an Instagram model for saying a few positive things about cryptocurrency seems like a good gig and may not be illegal.
You can copy-and-paste messages from social media or in Discord group discussions
A sign that crypto pump and dump scams are in the works is when you see many almost identical messages about new cryptocurrency popping up on social media, in Discord groups or pages for crypto- or investment lovers.
This is a large-scale and deliberate attempt to influence investors' behavior . This is just the beginning of scams. These are usually paid posts and ads may appear on video or social media.
It's more common for someone to share information about a stock or coin they have discovered. They'll likely do it in one group or several groups, and in a more natural way .
The technology that underpins most crypto projects is what makes them popular and it's something founders tend to focus on. For such projects, you won't find poorly-written ads and similar messages.
Advocacy campaigns that are aggressive
Scammers who use pump and dump tactics don't only use social media to lure victims. You may also notice aggressive advertising campaigns. If a cryptocurrency is just starting to gain popularity and there's not much market capital, this could be a red flag.
A company that is developing legitimate products will invest heavily in product design. Venture capitalists will finance most of their advertising budget, so they won't waste all their money on it. Companies that are bootstrapped tend to be more cautious about their spending.
It's normal to be suspicious when you find unidentified cryptocurrency ads all over YouTube and Facebook.
Do not invest in any investment that is solely based on speculation or popularity. There is a high chance that these assets will be a fraud or fail.
An unexpected price increase in an unknown coin
This is usually when the pump phase of the dump and pump scheme has already begun. This is when large numbers have fallen for the scheme and you will often notice a sudden price rise in charts for this particular coin. This is a red flag.
It is common for a large number of people to purchase the same cryptocurrency simultaneously to cause a price spike. These people could be the victims of similar persuasive posts or tweets, which would indicate a pump-and-dump scheme.
How to protect yourself from pump and dump cryptocurrency scams
This section will discuss general strategies to prevent crypto-pump and dump schemes, and ways you can ensure your investment in projects that have higher upside potential.
Your investment strategy should be a focus and you must stick with it.
It is essential to decide on your strategy before you invest or trade. You can make sure you only buy assets or projects that you are familiar with.
You might be able to invest in altcoins if you are tech-savvy and have a greater financial tolerance. This requires extensive research and it is not always simple to find detailed information about altcoins.
If you want to minimize risks, don't invest in altcoins and instead only choose established cryptocurrency like Ethereum or Monero. You'll be able to avoid cryptocurrency pump-and-dump scams.
Start small (first)
This applies to all new investments. You may be tempted to invest all of your money in one asset promising high returns. It's not a good strategy from a risk management perspective.
If you find a coin that interests you, invest a little to see how it works. Once you've gathered more information about the asset, it is possible to invest further. It is important not to rush into making a large investment.
Investment experts are unanimous in their belief that crypto is not enough to make a good investment portfolio.
Most people agree that you should invest the vast majority of your money in relatively stable investments, which aren't volatile. Then use less to explore riskier assets.
It is good advice that can help you avoid investing in pump-and-dump schemes. Do not make emotional investments. Always review all documentation prior to making any investment.
Determine if altcoins/crypto are right for you
Many people have reservations about crypto. This includes well-established currencies like Bitcoin and Ethereum. Although some people might be skeptical, it is important to keep in mind that cryptocurrencies are still relatively young.
These are more volatile than others because they are heavily influenced by speculation, and comments from celebrities.
After Elon Musk's comments in 2021, Bitcoin as well as Dogecoin saw a dramatic increase. Dogecoin's price hike was but it was actually about 500%. This is at least partially due to Musk’s comments.
Many were able to accuse him of Bitcoin pump-and-dump, market manipulation or even worse (which he strongly denied).
While we don't believe Musk was wrong, experts can comment. However, this illustrates that cryptocurrencies are highly volatile and could be used as scammers' tools.
Do not invest in money that you cannot afford to lose.
This is a common saying that many people don't want to hear. It's true do not invest any money that you aren't willing to lose. This saying is truer the more risky and volatile an investment.
The idea behind investing in volatile and risky assets like crypto is to limit your losses.
Your investments should be primarily in bonds, low-risk funds, or similar instruments. These are safer and more protected from fraud and volatility.
How to deal with a victim of the Pump and Dump?
Pump-and-dump victims are terrible for obvious reasons. You have little legal recourse. Cryptocurrencies aren't as regulated as the stock markets.
This is also true for investors and traders. Due to national and international regulations and laws, most investing platforms will only permit you access after verifying that your identity. This usually involves a photo of your driving licence or passport.
Before allowing people to trade, there are KYC requirements. This is not a huge deal in crypto. Many people
Cryptocurrency simply does not have the legal framework nor the means to hold it accountable. Unfortunately, this means that your options are limited after being scammed. There are however, some things that you can do.
If you have the time, sell your position
This isn't an S&P 500 ETF. You should get out of an unidentified crypto-project if it takes a big hit or you have a bad feeling.
It is difficult to tell if the project you are involved in is a pump-and-dump scheme. You should liquidate any holdings immediately if you are able to be suspicious prior the bigdumping phase begins. People hope the currency will rise in value after a dip. However, if you have even a small amount to save, it is worth it.
Report the pump or dump
Warning others is a smart idea after you have dealt with the shock and horror of being scammed. Social media is a great place to do this. Post on social media, and spread the word in Discord.
You should report crypto frauds to the cryptocurrency exchange where you purchased the coin.
-
Federal Trade Commission (FTC).
-
The Commodity Futures Trading Commission
-
Internet Crime Complaint Center
Cryptocurrency: Smartly Invest Your Money
Many crypto projects seem too good to true. These are best avoided. You should instead only invest money once you have carefully evaluated a project .
Do not listen to anyone telling you to buy something, particularly if the offer is just too good to be true. It is almost always true. These tips will ensure that you have low chances of getting scammed in the pump-and-dump scheme.
Are you having questions about the crypto-pump and dump scheme? Below are some of the most frequently asked questions. We'll answer your questions if we don't have the answers you need.
A financial fraud in which the investment price is altered with false information or comments, known as “Pump and Dump”, refers to an attempt to manipulate it. False positive comments will cause the price to rise, leading many people to purchase the asset.
Scammers will sell all of their assets shares when the price rises. The scammers will make lots of money, leaving the rest of their investors without any. We've also seen many cryptocurrency dump and pump schemes in recent years.
These are some signs to look out for in order to determine if a cryptocurrency project is a scam.
- Chart for this unknown cryptocurrency project shows an abrupt and significant price rise.
- You suddenly see identical messages across social media regarding new cryptocurrency and aggressive advertising campaigns.
- Influencers, who aren't experts in crypto, promote a particular cryptocurrency out of the blue.
We recommend that you learn about investing to prevent pump-and-dump scams.
It is possible to pump and dump cryptocurrency. This has actually been quite common in recent times. Cryptocurrency is not yet fully regulated. This makes it more susceptible to fraud and scams. It is important to recognize signs and avoid being scammed by pump-and-dump scams.