The unregulated cryptocurrency market opens the way to obscure (even outright dishonest) practices on the part of traders. One of the most common is Pump & Dump. While this technique has allowed a few to enrich themselves, unsuspecting new investors have lost a lot of money to it.
We are in an era that sees the birth of a new type of financial market, that of cryptocurrency. A market whose volatility (and therefore the possibility of “easy” gains) attracts the media, investors and especially the interest of the general public.
Since the media has been covering cryptocurrencies — especially Bitcoin — we have heard of success stories and the emergence of a new category of wealthy people: cryptomillionaires.
These success stories make a lot of people dream. However, taking advantage of the high volatility of the market isn’t always easy. To make sure that they do well (despite all ethical considerations) scammers are everywhere. Including pumpers.
Pump & Dump explained in a nutshell
Pump & Dump is a market manipulation. An actor (or a group of actors) buys a large amount of a certain cryptocurrency in order to raise its price, in the hope that other buyers will buy it too.
Pump & Dump is organized mainly via Telgram, Twitter and Facebook, on channels that have large communities with several thousands of followers.
First, the channel admin announces to his community the exact time at which the Pump & Dump will occur, so that subscribers are warned and ready when the purchase signal is sent. This is where it becomes interesting for the channel administrator: he does not yet reveal the name of the crypto-currency, which will allow him to buy a good volume of it at a very interesting price.
Then, once the time announced by the admin arrives, the whole community receives the name of the cryptocurrency that will be “pumped”. Following the announcement and the massive purchase of the community, the crypto in question experiences a significant price increase.
The problem is that during this rise, some people who don’t know it is a Pump & Dump manipulation will start to buy the crypto, hoping that it will continue its skyrocketed, without knowing that after the Pump... comes the Dump.
Who really benefits?
Once the community behind the Pump & Dump deems it worthwhile to sell, we see a sharp drop in price, which will put in trouble those who bought the cryptocurrency at a high price and who did not expect a massive resale.
As you may have understood, those who fill their pockets are the organizers of the Pump & Dump manipulation — those who bought at the lowest price and sold at the highest. The rest of the community just picks up the crumbs, and those who weren’t part of the action are screwed.
What do we think about it?
There are several ways to invest in a volatile market such as the cryptocurrency market. Some do so only out of a desire for speculation and a thirst for quick money without understanding the stakes. Nevertheless, this exposes them to great risks which can lead to great losses. Others prefer to invest by adopting a global strategy and showing a real vision of the market.
We believe that participating in Pump & Dump is not a choice that crypto lovers make. As passionate investors, we are not among those who think that the market is a bubble ready to burst. On the contrary, we see this market flourish and it goes against practices such as Pump & Dump.
We rely, at Crypto-Addicts, on a long-term strategy towards our members. As a company, the best way for us to prosper is to respect the market’s values and offer quality service. Indeed, it is much more profitable for the general public to rely on technical analysis and buying signals, rather than trying to make a profit by manipulating a financial market at the expense of the majority.
Don’t fall into the trap
Where there is a growing market, there will always be scammers who will find ways to profit from it at the expense of any moral, ethical consideration, putting at risk real investors and those who really believe in this market.