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Pump and dump of the cryptocurrency
Pump and Dump in Crypto
Cryptocurrency
12.10.2021
Updated 11.03.2022
13:10

Volatility is one of the parameters describing the property of assets to grow in price heavily or lose the cost within a short period. This characteristic is basic for such an earning scheme as ‘Pump and Dump’ when one of the two pricing directions is provoked with a view to get income.

What pump and dump in cryptocurrency is 

The pump is a pre-planned activity aimed at the growth of the coins’ price. A dump is an activity, the goal and result of which is the drop in the price of a token. Participants know future market tendencies in advance and may lock in significant profits on purchase/sale operations of coins.

Pump and dump schemes are pretty popular together with not the most famous assets that possess relatively low capitalization. It allows to:

Mechanics of the work of pumps and dumps 

The pump and dump strategy follows a trivial scheme, in which coordination and thoughtful actions exclusively are important, as well as good capital for investments. In most cases, everything goes this way:

  1. Experienced manipulators unite into a team and, using their investments, significantly affect the market.
  2. They purchase some niche coin at a cost that is historically minimal or close to that.
  3. After that, the coins are held in their wallets for some time, while the market starts experiencing the lack of the asset. Meanwhile, other additional methods to pump the interest to this growing in price token are used: popularization, disinformation, and other materials (videos, articles) to decoy users and attract as many new buyers as possible.
  4. Having waited for the peak cost and maintaining their ‘propaganda’ for newbies at the same level, the team starts to get rid of coins. They sell the altcoin to those who have believed in ‘to the Moon’ locking in their profits.

A typical example of pump and dump is a situation that happened with Dogecoin cryptocurrency:

After that, a continued drop takes place, and ‘dump’ joins the game. Artificial stimulation of the price growth ceases, and those who entered the market during its peak will only have to lock in losses to get at least part of their money back.

What varieties of pumps there are  

Currently, specialists define two main types of pumps artificially provoked by the experienced associations of market manipulators:

They are carried out using almost the same schemes but still have some differences.

Short-term pump

The easiest way to notice the short-term pump is in a trading terminal with the help of green candles that ‘shine’ up to half an hour but usually last for several minutes or even seconds.

The emphasis is put on qualities and interest to young yet famous enough among a range of investors coins. Their price tag is low and available, and the growth may begin abruptly and last for a long time without even any manipulations, naturally.

Knowing that, perpetrators rapidly purchase the asset at a low cost, thus, provoking the movement of the price up, and are waiting for the reaction from inexperienced users that should go and buy the coin growing in price ‘until it is not too late’.

Upon reaching the necessary price tag, the pump sharply transforms into the dump when whales sell the coins to the market back, but at a bloated price.

Long-term pump

The long-term pump works using the same principles but lasts far longer. It is also frequently applied in conjunction with more famous assets from the top-20 or top-50 by capitalization list and requires significant investments.

After a substantial purchase of the cryptocurrency, the members of the scheme:

The pump lasts for several days and usually has several waves (pump-dump), which allows increasing their investments several times.

How to recognize pump and dump: signs 

It is extremely important for a novice to understand the key signs of the pump and dump in order not to become one of the victims of professional manipulation. Since it is very rarely that one can earn on the pump and dump, not even being one of the participants of a scheme. And the risk of the mistake is too high.

Trading volume

If you noticed a rapid growth of the cryptocurrency cost but the analysis of trading volume before this event tells that the coin was hardly traded, that is one of the almost 100% signs of the pump. Most experts advise not to trust such an artificial pump of the price.

Information space

As a rule, the interest in a specific cryptocurrency is stable. The asset is almost equally discussed: in the same places and by almost the same people. As soon as there is hype about the coin in the information space literally ‘from everywhere’, that is the first indication of the pump. In such situations, every stranger tells about the future ‘to the Moon’ – even those who have not discussed digital money before.

That is a result of coordinated work on social media, popular channels, chats, etc. The creation of a required opinion among unsophisticated users – that is the basis of the successful pump and that a large number of newcomers is ready to purchase the coin at the top of its price indicator.

Analysis of the rate 

If the coin is in ‘flat’ position (a lull period when the price neither increases nor drops), that is a sign that the imaginary stability may result in a sharp increase or decrease of the price connected to the ‘Pump and dump’ strategy.

If after a long lull the growth appears to be too sharp – that is a reason to think and weigh your chances in order not to get into a possible trap.

How to anticipate the cryptocurrency pump

It is almost impossible to foresee the upcoming pump of cryptocurrency. However, there is a chance to understand what happens in a specific moment by actual indicators of the market. To do this, you need to check these parameters every time you are interested in an asset:

Who and how earns on pumps? 

Earning on pumps is a goal of the whole associations of traders and investors who have almost no fear of any consequences due to the absence of governmental regulation of this question. Such people unite into groups and communities (sometimes they include up to several dozen thousands of participants) that coordinate their actions for full synchronicity:

Today large and authoritative exchanges often do everything possible to record such communities and block accounts of ‘pump and dump’ strategy participants. And some even offer a reward to informants that will tell about their partners.

How not to lose on pumps 

In order not to get into a losing position provoked by pumps, you need to:

  1. Attentively study all the characteristics of a cryptocurrency on its official website and other reliable platforms before buying the asset.
  2. Monitor the market indicators at various exchanges (it is quite often that whales provoke the pump within one platform without affecting the rest of them).
  3. Monitor the news about assets on credible platforms (if there is no news about important events but the rate fluctuates, that is a bad sign).
  4. Forget about impulsive purchases and risk forever. If excitement is the only thing that pushes you to invest, then sooner or later, this may lead you to the list of victims of another pump and dump.
  5. Never trust info published in chats and forums dedicated to this cryptocurrency. Such platforms are one of the main tools of pumpers.
  6. Predictions without quality analytics are the thing you should not pay attention to.

Conclusions

The race for easy money is what will lead you to the hands of fraudsters. Earning on the pump is possible only using luck (and surely that is not a thing you should rely on) or being one of those who provoked it. But even that creates a lot of difficulties and risks that are difficult to deal with being a novice trader.

Частые вопросы

The pump is a pre-planned activity aimed at the growth of the coins’ price. A dump is an activity, the goal and result of which is the drop in the price of a token. Participants know future market tendencies in advance and may lock in significant profits on purchase/sale operations of coins.

It is extremely important for a novice to understand the key signs of the pump and dump in order not to become one of the victims of professional manipulation. Since it is very rarely that one can earn on the pump and dump, not even being one of the participants of a scheme. And the risk of the mistake is too high.