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This is a guest post by Artur Jaskólski from cryptocoinzone.com
The cryptocurrency market has been growing rapidly in the last few years. Now, the average trading volume of the cryptocurrency market is usually in trillions of dollars. However, there are plenty of problems that plague the market. One of them is called ‘pump and dump’. Pump and dump is a scheme to raise the value of an asset very quickly and then sell it to reap the profits from the price increase. People behind the token get rich and people who bought the tokens usually leave with worthless coins.
How does ‘pump and dump’ work
In a pump and dump scheme, the price of an asset is artificially increased through the well-planned marketing. The pump and dump group deploys various means of outreach like Twitter accounts or Telegram groups with hundreds or thousands of active users.
Once many false statements, social media posts, co-signs etc. appear, the misinformed investors do not want to miss out on the opportunity and buy up shares of stock.
People who are ‘in the scheme’ sell coins at the increased price and make profits. After most of the overvalued assets are sold, the price corrects to a more accurate valuation.
Is ‘pump and dump’ risk for the world of cryptocurrencies?
Even if the pump and dump scheme is illegal, it is still extremely popular in the world of cryptocurrencies. Pump and dump schemes are problematic mainly because of the lack of regulation. Every day, literally thousands of people are duped by the so-called pump and dump groups. This definitely puts trust in cryptocurrencies at risk.
Pump and dump makes it really hard for investors to deal in crypto and at the same time discourages potential new traders due to the fear of fraud. The scheme entails the whole cryptocurrency market, as well as the basic economics. It often involves the large-scale investors who buy massive volumes of crypto tokens. In the dump phase they cash in their holdings and the inexperienced investors are financially sabotaged. They cannot help investing in such a promising asset – inexperienced traders are usually attracted by coins that start experiencing a bullish uptick. The hype has dwindled, and the cryptocurrency market becomes more and more destabilized.
How to deal with cryptocurrency related frauds?
Pump and dumps might be very dangerous for those who are not in the inner cycle. It has become quite popular for the pump and dump groups to allow early access to the pumps, usually with a steep fee. Of course, there is always a chance that the pumps will not work, and the risk of loss is the highest if you are a novice trader.
You should get to know websites like Cryptocoinzone.com to have a better understanding of the trends that take place in the world of cryptocurrencies – that way you will not fall for such tricks as pump and dump.
Trading itself is a game with only two options: you win or lose. When it comes to “pump and dumps”, there is one important tip to be given to newbies. You should stay away from low volume shitcoins. They can be profitable only if you are an experienced trader who knows exactly what to do. On the opposite, when you invest in legit coins, there is usually a chance that they return or even increase.