What is Pump and Dump? Why Stay Away?

in LeoFinancelast month (edited)

What do the concepts of Pump and Dump mean in the cryptocurrency market?

One of the first events that investors new to cryptocurrency markets encounter first: Pump and Dump. So what is this "pump and dump"?

Pump and Dump Operation

Pump and Dump technique is completely a market manipulation and it is generally carried out in two ways today.

Misdirection!

A person or persons who aim to increase the price of a cryptocurrency in the pump and dump technique with misdirection, use social media platforms effectively. Aiming to raise the price, the group wants misleading news to be shared on social media in various channels, misleading the media and the public.

These misguides are that the price of a cryptocurrency or shitcoin, which is currently low in value, will soon rise a lot and the opportunity to buy should not be missed. These "referrals", which spread through social media, are attractive to new investors who think they will earn a lot of money in a short time.

Investors who think the price of the cryptocurrency will rise, start buying and the price increases with the increasing supply. The new investor, who gets more excited with the price increase, starts to offer the crypto money to his wife and friend. The price goes higher. However, when the person or persons making the referral sell the crypto money in the first place, the price drops suddenly.

As the price decreases, everyone who has the crypto money in their portfolio starts selling. However, if everyone wants to sell suddenly, the sell order may not be successful because there is no buyer for the coin. In other words, the investor's money stays inside, it will make a loss.

Pump and Dump Groups

A person or persons aiming to raise the price of a crypto currency without much value establish groups on various social networking platforms. Recently, it is seen that these groups are mostly on Telegram.

These groups are organized to increase the price of a certain cryptocurrency. For example, the manager of the group chooses the x coin. He says, "Now we will go into x coin" and almost everyone in the group starts to buy x coins immediately. As the supply increases, the price of x coin also rises.

The people behind the manipulation start selling x coins when they arrive at the target price. The price suddenly goes down. Panicking group members also try to sell their x coin. However, with a sudden decrease, they may have to sell at a much lower price than their purchase price. So they can hurt.

Scheme of operation
Source: Empirica

Why Should Pump and Dump Stay Away?

Pump and dump is a market manipulation. The profits of the manipulation are not new investors, but those who manipulate them. In other words, misguided new investors who enter the pump and dump groups in order to make easy profits often suffer losses.

New investors who want to make big profits without gaining experience in crypto money markets, without reading whitepapers or knowing technical analysis and fundamental analysis, and who enter pump groups for this will end up dump.

Source: Muhabbit

Posted Using LeoFinance Beta

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Edited