What is a pump and dump scheme?
A pump and dump scheme is a form of market manipulation. This type of manipulation is common in investments in cryptocurrencies. In this article, we discuss what a pump & dump is so that you can better protect yourself against this type of fraud.
How does a pump and dump work?
A pump and dump is often undertaken by a team of investors who collectively decide to buy a cheap, little-known cryptocurrency.
They then use social media channels to reach many people at once. They try to make the coin go viral by sharing a lot of good news. This attracts more people to the coin, causing the value of the cryptocurrency to rise further.
However, the original owners know that there is no real value behind the pump and dump. They typically decide to sell the cryptocurrency massively when the price skyrockets. The people who entered later are then left with a worthless crypto coin.
How can you recognize a pump and dump?
In a price chart, a pump and dump can often be easily recognized: the price barely moves for a long time and then suddenly rises sharply. When you dive into the matter, you cannot find a clear reason why the crypto coin is worth so much. The rise is then followed by a sharp drop; the team sells the crypto coin at this point.
You can recognize a pump and dump in advance by analysing the story behind the crypto coin. For example, is there a good white paper available that describes the added value of the crypto coin? If not, it is important to be sceptical about this opportunity.
Famous Dutch people also regularly participate in a pump & dump
Can you make money with a pump and dump?
In theory, you can make money with a pump and dump. However, it is essential to enter at the right time, namely before the coin is dumped en masse.
In practice, few people succeed in making money with a pump and dump. 80 to 90 percent of investors lose money with these types of crypto coins.
It appears that you can only really make money with a pump and dump by setting one up yourself. However, this is ethically reprehensible and not legal.
Watch out for famous people promoting crypto
There are many famous people who sell pump and dump cryptos themselves. In some cases, they have no idea what they are promoting, and in other cases, they even profit from it.
A good example of this is the Xpose crypto coin in the Netherlands, which was set up by rapper Boef. This coin had no good story, and he used his fame to bring the coin to the attention of many young people.
Of course, he earned a lot of money from this himself. When asked about his opinion on this in a documentary, he said that it was a great way to learn a lesson. He didn’t seem to care that many young people with little knowledge of financial matters had lost a lot of money.
I hope that these types of criminal practices can be better addressed in the future.
