Crypto pump and dump often leaves vulnerable investors who missed selling from the peak with a very low valuation of their tokens. It may even render their coins worthless in some instances. This article shows the signs you should watch out for to avoid falling prey to them.
What is Pump and Dump in Crypto?
Crypto pump and dump is a market manipulation technique that operates much like its counterparts in stocks and other commodities. It is the process of artificially inflating a cryptocurrency’s value through coordinated buying to create a market bubble. This is done by a group of users acting in tandem, who first rapidly purchase coins to drive up the price and then quickly sell off their holdings to take advantage of the inflated prices. This rapid increase followed by an abrupt plunge causes investors to incur significant losses.
Crypto pump and dumps are illegal in regulated markets, but they still occur on unregulated exchanges or private networks.
Red Flags that May Indicate a Crypto Pump and Dump
To protect yourself from becoming prey to this type of unscrupulous scheme, it’s important that you as an investor should familiarize yourself with the red flags associated with crypto pump and dumps. Here are some key signals that may point to these:
1. Oddly High Trading Volumes
One common sign is an unusually high trading volume which could suggest a coordinated effort to drive up prices. Oftentimes, these movements don’t correlate with market fundamentals or show any other kind of rationality behind them.
2. Unexpected Price Surge
A sudden surge in price without prior warning can be another indication that there might be something fishy going on behind the scenes. This kind of activity commonly takes place before a pump begins.
3. Unfounded Hype
There may also be hype surrounding the coin being pumped created by third-party marketers. These people normally utilize social media channels like Twitter, Discord, or Telegram groups as well as websites dedicated to cryptocurrency trading for promotional purposes. It’s important to consider whether this hype appears legitimate or not when making your decisions about a potential investment opportunity.
4. Unusual Network Activity
Sometimes there can also be unusual network activity suggesting large amounts of coins being transferred between wallets. They are commonly coupled with glitches in the system that usually prevent other people from trading their coins. Any of these could signal an impending pump and dump event taking place soon afterwards.
5. No Clear Use Cases
Another factor that could indicate a suspicious project is if it doesn’t seem to have any clear use case besides being traded as an asset. Fraudulent projects often only exist for short periods before they disappear into thin air leaving investors holding worthless tokens.
Final Thoughts
Investors need to remain vigilant and recognize when these signs are present so they can avoid investing in any potential crypto pumps and dumps. Always practice due diligence before getting on the bandwagon. By paying attention to trading patterns and volumes, researching coins before investing, and being aware of signs of fake news or rumors, you as an investor can protect yourself from any fraudulent activity, especially pump-and-dump schemes.