Pump and Dump are probably two common terms that you often hear when participating in the cryptocurrency community. So what is Pump? In coin trading, a Pump Dump is a very risky form of swing investing. If you are new and lack knowledge, you can easily become “prey” for the “sharks”. So Crypto Trading will learn about the two phenomena of Pump and Dump in the cryptocurrency market through this article. Let’s see!
Dump và What is Pump?
Pump and Dump is a form of fraud that appears in the cryptocurrency market. So what is Pump and Dump?
What is Pump?
The pump is a term in the cryptocurrency industry that means “to pump”. This is the act of buying a large amount of a coin. The purpose is to increase demand and push the coin’s price much higher than its real value. This will attract the attention of traders. When a strong Pump is often followed by a Sideway phase. Where the coin price fluctuates in a narrow range before the next fluctuation. At a certain point, buyers will start to sell, possibly even causing the price to fall to 0. Initially, the coins chosen for Pump are often low in value and little known.
What is dump in crypto in crypto investment?
A dump, or “dumping,” occurs after a coin has been pumped to a much higher price than it was originally. At this point, the coins are sold to profit from the price difference.
Once the manipulators (whales) have taken enough profit and exited safely, the coin price stops rising, and trading volume begins to decline. Panic spreads through the investment community as the price continues to fall, each new low being lower than the previous one. Eventually, those who are trapped have to sell below market price, or “cut their losses”, to try to recover some of their capital.
See more: What is Dump? Tips to help you “avoid” the dump trap
Examples of Dump and What is Pump
The cryptocurrency market emerged in 2017 when BTC was below $10,000. In 2021, whales started a pumping strategy by buying large amounts of BTC, pushing the price above $30,000 in January and selling when BTC surpassed $50,000 in April.
Then retail investors bought in, and the whales stopped dumping to start the second Pump. They bought more BTC and altcoins to stimulate demand. As a result, BTC peaked at $66,000 in October 2021. However, after that, the whales dumped a large amount of coins, causing the price of BTC and other coins to plummet. By 2023, the price of BTC was only $23,986.
What is Pump and Dump Process in Crypto?
The pumping and unloading process usually consists of 3 main steps:
- Collecting and accumulating: Investors buy large quantities of low-priced coins to reserve, creating virtual demand for the coin.
- Pump and hold: Whales convince new investors to buy coins at higher prices by setting up forums and discussing the future of crypto and altcoins, manipulating sentiment, and preparing for a sell-off.
- Dump and exit: Sharks sell to take profit.
What Causes Dump and What is Pump
The following reasons create Pump and Dump traps, making the crypto market riskier:
Credential
Loose and unclear legal
Currently, most countries in the world still do not have a legal framework for cryptocurrencies. Therefore, this becomes an attractive opportunity for big sharks to apply the Pump and Dump strategy in crypto. In addition, use other traps to gain profits without being interfered by authorities.
While stock exchanges protect investors from market manipulation, cryptocurrency exchanges do not have this protection mechanism. Because cryptocurrencies are present in most countries, there is still no legal framework. In the UK, there is no law to protect investors. Therefore, when participating in the cryptocurrency market, investors need to have rich knowledge and the ability to protect themselves.
What is the cause of FOMO psychology in crypto?
The FOMO (Fear of Missing Out) phenomenon is the feeling of missing out on an opportunity. They will be exploited by the sharks to convince new investors, even those with no experience. This effect helps the sharks easily manipulate the market through comments and reviews on forums and social networks.
ICO
Experienced investors often apply the Pump and Pump strategy through ICO activities. They are often backed by famous figures in the cryptocurrency community.
Once the coin price increases significantly and reaches its profit target, this group will start selling rapidly. This causes heavy losses to small investors.
These schemes are usually aimed at new, small, and less-traded altcoins who do not have much experience.
How to avoid Dump and Pump in crypto investing
Here are ways to prevent and recognize Dump and What is Pump :
Signs to Identify Pump and Dump in Crypto Investing
In the market, Pump and Dump is a way for investors to make profits. New investors can rely on the following characteristics to identify:
- Sudden Price Increase: If you watch the market and see a normal coin increase in price continuously for a few hours or days.
- News on forums, and newspapers: If a reputable newspaper or forum posts news about a coin its price increases steadily. That could be a sign of a Pump.
- Celebrity Appearance: If a small cap coin suddenly becomes popular on a celebrity’s page. Or it is mentioned on tech forums and social networks.
See more: MEXC: Open a MEXC account, invest effectively
What is Pump Prevention
To avoid falling into the sharks’ trap, here are some tips for you:
- Be wary of “sudden” and “high return” investment opportunities
Although forums often warn about scams in the market, there are still investors who get trapped. Therefore, do not trust too much in “promising” projects and promises of big profits in the future.
- Be cautious with investment offers from friends, celebrities,…
While not everyone is out to scam you, sometimes blind trust in a relationship can put you at risk if you don’t do your due diligence.
- Research coins carefully before investing: Learn carefully about the market and the coins you want to invest in first. Then decide to invest.
Conclude
In conclusion, Pump and Dump activities have caused many risks and losses for investors. The cryptocurrency market is promising in the future, but it also carries many risks of fraud. Therefore, improving your understanding of What is Pump is very important. To increase your knowledge and awareness, follow Crypto Trading articles. Hope you will become a smart and wise investor!
FAQs
Is Pumping Legal in the UK?
Currently, the UK does not have a specific legal framework for cryptocurrencies. However, price manipulation can be handled under anti-fraud laws.
What is the difference between Pump and Dump and legal trading?
Pump and Dump is intentional price manipulation. While legitimate trading follows the natural laws of supply and demand.
What coins do pumps usually occur on?
Usually happens on new, small, little-known coins.
