How to spot a pumped Cryptocurrency

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What is a cryptocurrency?

A cryptocurrency is a digital payment system that doesn't rely on banks to verify transactions. It's a peer-to-peer system that can enable anyone anywhere to send and receive payments. Instead of being physical money that is carried around and exchanged in the real world, cryptocurrency payments exist purely as digital entries to an online database that describe specific transactions. When you transfer cryptocurrency funds, the transactions are recorded in a public ledger. You store your cryptocurrency in a digital wallet.

                        cryptocurrencies Cardano, Binancecoin and Ethereum - TechRepublic

 

The prevalence of crypto pump and dump has been seen in recent times where individuals and organizations intentionally influence the price movement of crypto assets, notable example being Elon musk' pumping of bitcoin and doge coin, John Macaffe Twitter pump of altcoins. This article identifies how to recognize a pump and dump when you see one and which coins are the most likely to be targeted.

While bitcoin has become an accepted alternative asset class with regulated exchanges, institutional investor interest, and its own futures contracts, many altcoins have fallen victims to pump and dump schemes.

What is a crypto pump and dump scheme?

Pump and dump schemes  are a form of securities fraud that have existed for decades and originally focused on the equity markets. More specifically, on small-cap stocks. The way an equity markets pump and dump scheme works is that a small group of investors select and purchase shares in a company with a low market capitalization, thereby causing an initial jump in price.

Next, call center operations  – call potential private investors with the aim of convincing them to purchase the stock by providing false information claiming the stock is about to experience substantial gains. Once enough investors have been misled into purchasing the stock and its price has risen by enough, the initial group of investors will sell their holdings to take profit, before the price collapses and all following investors make heavy losses.

This type of securities fraud has also made it into the cryptocurrency markets. While the modus operandi has changed, pump and dump schemes are alive and kicking in the altcoin market due to its unregulated nature.

These schemes target low capitalization cryptocurrencies and digital tokens that can easily be manipulated with low trading volumes. in p[lace of call center operations, the price pumps are conducted by spreading hype and fake information about a coin on social media.

The comments section of crypto-related videos on YouTube is a prime target for coin hype. For example, the Brave New Coin YouTube channel’s comments section is moderated on a daily basis for potential pump and dump scams. In this scenario, people attempt to hijack discussions and inject comments about a coin they are trying to hype into otherwise genuine conversations.

Communication among pump and dump group members happens on encrypted messaging services such as Telegram, where groups can contain several thousand members and are usually entered upon invitation.

In these group chats, a coin that will be “pumped” will be announced after the original perpetrator of the scam buys the coin. Within minutes, group members also buy and then spread fake news about the coin on social media, blogs and sometimes even on news outlets thought of as reputable through paid-for sponsored content.

Once the price has jumped, the initiators of the pump sell their coins, followed by other members in the pump and dump messaging group. Then the price collapses again, leaving all investors who bought after the price surge with steep losses.

A close examination of their websites and white papers reveals no underlying business model or technology use case at all. Or if there is one, it makes no commercial sense.

The financial model of these projects is that funds are spent on minting trillions (or quadrillions) of tokens, followed by maximum-hype marketing, well-designed websites and massive social media pushes. The end game for these tokens is a major exchange listing, where, in a best-case scenario, speculative momentum keeps the game going.

How to spot a crypto pump and dump scheme

  • The easiest way to identify a pump and dump scheme is when an unknown coin suddenly rises substantially without a real reason to do so. This can be easily viewed on a coin’s price chart
  • When you see paid news articles about a small cap coin appearing in combination with a surge in social media activity surrounding that particular cryptocurrency project, this could be the sign of a pump taking place. If an entirely unknown coin with market capitalization of only a few million dollars suddenly appears all over Twitter and Facebook, one should be wary.
  • Always remember that whenever there is too much publicity on social media about a particular cryptocurrency, care must be taken when considering investing in such currency, as the perpetrators with no intent of long tern investment may be planning a pump and dump activity.

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