“Pump and dump” practice is a phenomenon where market makers artificially inflate the price of a specific cryptocurrency to attract new investors. Let's examine these tactics and their impact on the cryptocurrency market
1. Conscious reduction of trading volumes: Market makers may intentionally decrease trading volumes of a coin over an extended period, leading to reduced activity and interest in the coin. This keeps the number of investors low. Then, market makers can initiate a pump, creating the illusion of increasing activity and interest in the coin, attracting new investors and temporarily driving up prices.
2. Mass buying: Market makers can deliberately create artificial demand for a coin by buying large volumes within a short period. This may attract the attention of other investors who see price increases and begin to buy the coin in hopes of making a profit. (This is easier to do when there are few holders left in the asset.)
3. Dissemination of information: Market makers can use various channels such as social media, blogs, or forums to spread positive information about the coin. This may include announcements of presumed partnerships, new features, or updates that could attract the interest of new investors. (Usually, the market maker sells the accumulated coins here.)
