What does Pump and Dump mean in Crypto? A “pump-and-dump” strategy is a form of market manipulation that has been around long before cryptocurrencies existed. If you’ve seen the movie The Wolf of Wall Street, then you already have some idea of how a pump-and-dump scheme works in the stock market.
Example: “If Dogecoin is a joke, why is Elon Musk pumping this meme cryptocurrency?”
“Pump” happens when a coin or token’s attention and demand in the market goes up, leading to a price increase. Then, everyone “dumps” the cryptocurrency and sells, coupled with a spread of negative emotions towards it. This will result in big waves in the crypto’s value.
Similar to FUD, pump and dump is another tactic they use to manipulate the sentiments of the crypto market. In many cases, traders artificially inflate the price of cryptocurrencies with the hope of making a quick profit at the expense of other investors.
In the crypto space, pump-and-dump schemes are often orchestrated through messaging apps like Telegram. The practice is an “open secret among many cryptocurrency traders”, according to a Business Insider report in 2017. Business Insider observed five apparent “pump and dumps” of tokens in a week.
Most of those tokens have smaller market cap and thin trading volumes (like penny stocks). Making them ripe for pump-and-dump manipulation. Amid the speculative trading frenzy in the ICO boom, the new population of investors coming into the crypto space are prime to participate in pump and dump.
Though pump-and-dumps have become less frequent than back in 2017, they’re still around on the crypto markets.
To avoid pump-and-dump schemes, a simple rule of thumb is that you should never listen to one particular influencer’s opinions about investment decisions or price predictions. Even if they present their predictions as accurate most of the time.
Instead, take in as many different opinions as you can, do your own research (DYOR). Always verify and validate market news and information, and base your investment decisions on your own conclusions, not simply trusting others.