What do investors need to know about crypto pump-and-dump?
Crypto investments still exist because some people strongly believe that cryptocurrency is the future of money. Unfortunately, cryptocurrencies are riddled with scams, one of which is the pump-and-dump.
Crypto pump-and-dump scams investors should know
Pump-and-dump is a scam where unscrupulous individuals encourage investors to participate in a trading activity. Unsuspecting investors will be instructed to buy an unfamiliar altcoin that’s hyped or “pumped” by the scammers. As the value of the cheap altcoin reached a certain amount, the scammers will suddenly sell all their stocks, hence the term “dump,” leaving the majority of investors owning a seemingly worthless altcoin.
Crypto pump-and-dump scammers use social media platforms like Facebook, Twitter and websites to promote an unfamiliar altcoin. Other scammers encourage investors to participate in chat groups and online forums to give them information about the unknown altcoin and the platform where the trading will take place.
A typical pump scheme is when celebrities or self-proclaimed “fintech experts” are used to promote an altcoin or create press releases that it’s supported by venture capitalists.
Ways investors can protect themselves from crypto pump-and-dump scams
Although researchers have developed a trainable tool to immediately detect a pump-and-dump scam, the U.S. Commodity Futures Trading Commission has provided ways for investors to be protected from such scams.
• Don’t buy a crypto that’s promoted by self-proclaimed trade experts on social media platforms.
• Don’t be fooled by ads and other web contents promoting “get-rich-quick” schemes by just buying a particular little-known cryptocurrency.
• Don’t join in pump-and-dump activities even if you think you get first-hand information.
• Don’t be fooled by too-good-to-be-true marketing terms like “zero risk” or “guaranteed investment.” Crypto investments are always risky.
• Do your due diligence and ask someone you know who’s familiar with a particular crypto before buying.
Bonus tip: because pump-and-dump scams often take place in unlicensed crypto trading platforms with too much digital asset pairings, crypto investors may also consider buying cryptos from reliable crypto exchange sites. Some crypto trading sites nowadays offer a margin trading feature for investors to possibly maximize their investments.