In the volatile crypto market, steering clear of pump-and-dump schemes is essential. Recognizing signs of such schemes is crucial for protecting oneself. This guide assists in detecting pump-and-dump tokens in the crypto sphere to guard against potential risks.
Exploring Pump-and-dump Schemes
Pump-and-dump schemes entail coordinated efforts to drive up the value of a low-priced token or cryptocurrency through synchronized massive purchases. This lures unsuspecting investors motivated by the fear of missing out (FOMO), before the perpetrators unload at a predetermined price.
While traditional trading activities prohibit pump-and-dump schemes, the absence of crypto regulations permits Crypto Pump-and-dump operations to function in a legal gray area. These schemes raise moral concerns as they dupe uninformed buyers and leverage them for exit liquidity.
The scheme typically kicks off with a “pump” phase, where major asset holders such as project developers or early investors promote the project with exaggerated assertions on platforms like Twitter, YouTube, or Telegram. As more individuals acquire the asset, its price soars.
Subsequently, the “dump” phase ensues, where initial investors sell their assets once a specific price goal is reached, yielding considerable profits. This phase occurs swiftly, leading to a sharp decline in prices. Subsequent investors often mimic this action, resulting in significant losses or total depletion of their investments.
Always watch out for clear warning signs such as a cryptocurrency gaining significant social media attention, particularly through bots, or being excessively promoted by celebrities or influencers. These assets typically have low liquidity or originate from obscure, unrecognized projects.
In some cases, pump-and-dump schemes are not coordinated by the project but rather exploited by pump-and-dump groups, especially through bots, or are being shipped endlessly by celebrities or influencers. The assets in question often have low liquidity or are from obscure or unknown projects that are unrecognized. Sometimes these pump-and-dump are not orchestrated by the project but targeted by Pump-and-dump groups.
Most notably, abrupt and substantial price spikes of several hundred or thousand percentage points often signal a Pump-and-dump scheme. Therefore, it’s wise to steer clear. Safeguarding oneself from financial jeopardy is most effectively done by avoiding quick fixes, conducting research (DYOR), and abstaining from involvement in overly enticing opportunities.
Learn how to do your research by reading this article on Top 6 research tools every investor needs to use
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