There is a high probability of pump-and-dump scams in the cryptocurrency market. Thinly traded cryptocurrencies are a prime target for scammers and other nefarious actors because many rules are unclear and difficult to enforce.
You will be more likely to avoid taking advantage of a pump-and-dump scam if you understand how it works, why cryptocurrency markets are particularly susceptible to them, and how to spot them.
What are “pump and dump”?
The number of strategies created for cryptocurrency, a relatively new asset, is already impressive. There are three main trading approaches:
- Those using technical analysis, including patterns, support and resistance levels, and Fibonacci ratios.
- Based on developer news, those based on fundamental analysis: trading at the commencement and termination of forks.
- The psychology trades: trading based on an understanding of market participants’ actions (“hamsters,” “whales”).
It would be better to call the Pump & Dump scheme a separate category instead of lumping it in with the third type of scheme. Pump and dump fraud is considered by many to be a scam – on the Internet, it is described as a scam. Of course, it is, but who says you can’t participate?
In Pump & Dump, the cryptocurrency price is artificially driven high through coordination between participants, followed by a sharp drop. A pump and dump program is similar to the hype in that they are pyramid schemes in a way, but that doesn’t mean people aren’t interested in taking part.
The thrill of excitement is no less rewarding for traders than the joy of a successful transaction. Many traders trade for fun, and sometimes the emotions they experience are more valuable than the money they earn.
How to avoid crypto scams
Scams can be avoided by following these tips:
Verify credentials
Make sure you are critical when you view things online. Your research should verify the legitimacy of the investment since social media can be misleading.
Be patient. Don’t let FOMO get the best of you.
While the crypto community can be under enormous pressure to take advantage of opportunities as quickly as possible, you should always take your time to research opportunities.
Investing just because everyone else is doing it doesn’t make it a good investment. Be cautious when an influential person begins to get excited about a new token, as it may be a scam.
Don’t submit a project without checking all the details.
You can detect investment fraud by observing the red flags. Check multiple sources of information, including the whitepaper or website of a project, and stay on top of market developments. There should be a website and a whitepaper if there are none.
It is also wise to check the market cap of a cryptocurrency project to see if it is steadily increasing or rapidly rising. Warning signs can also be found in rapid jumps. If you dig into technical details, if you dig into technical details, a chain explorer will show you details, such as the chain’s volume.
Bottom line
It is essential to consider Pump & Dump as a different strategy since it does not require technical or fundamental analysis knowledge. This strategy is unclear whether it can be considered fraud, but it benefits the organizers. How about becoming one? The anonymity of the method and lack of legislation make this legal. Pump objects have a stable price, so the coin’s price will probably not drop below the initial price if the scheme fails. Getting people to buy is as simple as finding them and wishing you success!
