Bitcoin isn’t just one method for making the globe more decentralized and democratic. Like with any hype field (and the crypt remains one after 13 years), it is rife with fraudsters chasing other people’s money. Particularly when the market is unregulated by legislation.

Pump and dump is one method for shaving gullible hamsters. It is known as pumping and dumping. What exactly is the point of this method? How can you avoid being a victim of pump and dump? Is it feasible to profit from this? Let’s sort it out together.

What is pump and dump and how does it work?

Assume you saw a signal in a private chat: this and that cryptocurrency will shortly donate a few X’s. This message passes by as though by chance in everyday tumult, yet some obsessive notion does not leave you. You’re already thinking about the thousand that’s collecting dust under the mattress. Shouldn’t money bring money? And now you’re in a rush to get the crypt into your wallet — right now.

A pump is an artificial injection of money into the market that generates a sudden increase in the exchange rate. The pump’s objective is to extract monies at the highest possible price. A dump is the process of resetting assets and, as a result, their pricing.

The strategy has long been recognized and is regularly employed in the securities industry. Scammers choose shares of obscure firms and exaggerate their value. The case of the brokerage firm Stretton Oakmont, one of whose leaders was Jordan Belfort, is perhaps the most prominent example. Yeah, it’s the same Wall Street wolf.

The scheme is divided into three stages:

1. Prepare the soil. The attackers select a little-known coin. Then they begin to pump money into it, albeit cautiously. Otherwise, you risk scaring away potential investors. In addition, a low-cost coin from an ICO project is frequently picked for a pump dump. Swindlers are undertaking a publicity campaign in this case by sending signals to buy a currency into conversations and messengers. They occasionally spread false information regarding the project. As a result, only official sources should be used to follow project information.

2. Pump. To begin with, the fraudsters are dumping their money. Second, investors who believed in “rapid development” are coming in. Growth is occurring: prices climb by 30–50% in a short period of time. Occasionally, 100% and even 1000% are used. It is only then that it occurs…

3. Dump. Fraudsters put sell orders, causing the rate to fall. Those who have been duped have two options: rectify their losses and preserve at least some of their money, or wait for the rate to possibly climb in the future.

Pump and Dump Models

That may happen in a variety of ways: perhaps the rate will climb as well, allowing you to withdraw virtual assets into fiat and return to zero. It’s fine if you didn’t put in the last money (and it happens that investors invest not just the last money, but also credit). In this situation, you can keep them in your wallet and wait for them to develop again.

Dumps are: * disposable; * wavy, which means that fraudsters “cut” unsuspecting investors twice, or even three times. By the third time, the strategy is usually no longer applicable since faith in the currency has been gone.

Dumps are classified as follows based on price collapse:

1. unexpected. Investors have minutes, if not seconds, to respond to market moves in this instance. The price of the Squid Game has dropped dramatically as an example of such a dump. As you recall, this coin first debuted against the backdrop of the hoopla surrounding the TV show “The Squid Game”; 2. Gradual. It can linger for many days and is frequently accompanied by forgeries, as we already discussed. Pump and dump schemes, by the way, are not inherently fraudulent. These English terms merely refer to the pumping and dumping procedures. Carpet pulling is a fraud that pump & dump is a component of. On the Squid Game token, it was she who was duped by thieves.

Other pump and dump examples include Stepn and Luna.

The StepN project’s MoveToEarn token increased by 63% in April 2022. Despite the fact that this increase corresponded with the company’s announcement of a collaboration with Asics, Coinbase notes that “there is clear evidence that fundamental catalysts have played a crucial influence in the price movement of the cryptocurrency.” On April 28, the coin achieved its all-time high of $4.11 before falling four times in the following weeks.

By the way, we’ve written about M2E before: we examined if this notion would become a full-fledged trend, and then we discussed it with the inventor of SWEATCOIN.

Even if you are new to cryptocurrency, you are surely aware of the LUNA token’s collapse in May of this year: in only 7 days, the token lost about 100% of its value, and its capitalization plummeted by nearly 21 times. To summarize, someone removed all 30,000 bitcoins used as collateral for the Terra stablecoin — UST. It is too early to tell if this was a premeditated action or a pump&dump. Even South Korea’s leadership has begun to comprehend the issue, and we are all eagerly awaiting the outcome.

Pump & Dump distinguishing characteristics: how to understand course manipulation

A sudden surge in the price of a token is not always indicative of fraud. As was the case with CRO (before the rebranding — Crypto.com) or ADA, it may be a long and laborious collaborative effort.

Provoked growth has the following characteristics:

1. Manipulation of the market via money. It takes happen by previous arrangement, whether it is with whales or a bunch of unknown people. Pumping and dumping are always planned actions.

2. Increasing the value of cryptocurrency marketplaces. Such marketplaces are more easily manipulated than BTC and ETH. So even little financial inputs may have a major impact on the altcoin’s price. Therefore, tracking information about well-known projects is simpler than tracking information on a little-known coin from the rear of the Coinmarketcap ranking.

3. Inadequate official information. This might be news on the official website regarding the debut of a new product, software updates, the launch of your own project wallet, and so on. The coin rate usually rises in response to encouraging news. If you learned that the price will “increase” via some type of “private chat,” they are most certainly trying to defraud you. A sudden spike in the value of a coin is virtually always cause for concern.

4. Growth in trade volume. For starters, with a pump, the trade volume is not accompanied by a rise in the exchange rate. Second, there are no formal qualifications for this. Significant project events are always noted in the WhitePaper (Project White Paper) and Roadmap (project roadmap). The first responds to the question of what problems the project addresses and what responsibilities it assigns, while the second responds to how and when it will do so.

How can you profit from the Pump & Dump scheme?

To begin, you should consider what sort of “pumping” you want to do. This is nearly difficult with an immediate pump. You have to be really lucky, or you have to be on par with the pump-dump organizers, for this to happen.

Another possibility is that you are the one who initiates the manipulation. Assume you have between a few hundred thousand and a few million dollars. They are with you in some obscure currency. How are you going to pump this coin?

1. Put orders to sell down in little increments of $0.0372, $0.037, $0.0369, and so on. Traders notice the price decline and begin selling; 2. Begin purchasing this coin again. This is done on several exchanges where the currency is listed. You may purchase OTC, that is, without using crypto exchanges.

What is the outcome? We sold our VRs for between $0.03592 and $0.0372. We purchase this currency back at a profit of 10–20% at a price range of $0.0315-$0.0329.

It’s a little easier with a slow pump. You can put sell orders to earn x, but you only have a few minutes. Profits on the pump is more than just a shady scam in which most investors are duped. It’s also dangerous.