It’s very rare if you are not aware of these shady pumps and dump schemes. However, in cryptocurrency the market is unregulated and that means these scammers have found a sweet place to keep these pump-and-dump schemes working without being tracked by the Governments or Federal Agents.
Before we start, let me explain what a pump-and-dump scheme is. Manipulating the markets is an illegal business operation and making profits by manipulating is a sure way to land in prison. But wait, that is for regulated spaces. In the world of cryptocurrency, the massive pump and dump events are done in a way that benefits the market movers ie, the Whales. The manipulators usually have a large position in a low market cap coin and when they pump, they dump their tokens in the face of newbies who enter the hype.
Well, that was a short summary of a pump-and-dump operation.
Let’s dive in deeper with some examples.
The first step in a pump and dump scheme is usually building a fake social media hype or getting a community involved in some get-rich-quick idea. I’ve seen some telegram channels & discord servers shilling really low market cap coins and a date/time along with some take-profit prices. The campaign is usually a well-planned sequence where the marketing and promotions could potentially involve well-known Instagram Celebrities or YouTubers who are paid to shill the token.
Once you start scrolling your Instagram feed or YouTube homepage, you might come across these catchy thumbnails claiming a 3000x return or maybe your favorite influencer calling themselves an ambassador for the project. That’s how you build hype around a coin. The so-called no-coiners will suddenly pretend to be crypto influencers and start making full youtube videos around a token for which they have been paid really well.
Then we move to the next part, which is to start target online advertisements. Once you start scrolling Twitter/Google/Instagram/Facebook the same coin will start appearing everywhere. You’ll be tried to convince as much as possible that it is a genuine project backed by excellent people and that you’ll make exceptional returns as you are an early investor.
Discord/Telegram Chat Groups.
The shocking truth about these pump chat groups is that they have a massive number of subscribers. Wait for these guys, no one really matters. They start accumulating a really low market cap coin for weeks before they shill it to their audience. So the real people who make money in these insane chat groups are the anonymous admins, not the average Joe.
Just when you look at these things happening and people investing their real money trusting these guys, it feels wrong. Now you can ask me, why on earth do I even care about these incidents?
The fact is if people keep investing in these coins without even caring about the outcomes and lose their hard-earned money to these scammers they will move out of the ecosystem thinking the whole industry is a scam.
Why do they pick low market Cap Coins?
When scammers select any token, they have to make sure its price can be manipulated by them or their community and their accumulation should not be noticed by traders weeks ahead of their pump. You can’t just come up and say that I’ll manipulate Bitcoin prices. You will obviously need billions of dollars to do so. But if you have a coin of market cap $2 million or $3 million, it’s much easier to do.
This is a chart of $DORA/USDT on KuCoin exchange, the same token which they shilled in their group. Can you see how quickly the pump ended in less than a minute? That’s their entire scam.
These tokens which are also called Shitcoins can be created easily on various blockchains like BSC or Ethereum Chain. The developers who create these coins can create billions or millions of these claiming to become the next big thing or “Ethereum Killer”. Since it’s easy for anyone to create these worthless tokens so easily they try to convince enough people to buy these super cheap coins by running these huge social media campaigns or by getting an influencer to speak about their project.
Wait but there’s a slight difference in terminology. In crypto, the entire cycle of pump and dump is also known as a rug pull. Basically, a scammer can create 1 billion worthless tokens and if they even go up by a decimal point they make huge returns and if they dump their tokens which are reserved for founders or pre-mined before launched, the value of the remaining tokens would plummet instantly. That’s a rug pull.
Aren’t they Illegal?
For the stock market, it is 100% illegal. Be it in India or in the US or any other country. Insider trading is absolutely illegal and people can get in trouble for doing such activities. But in Crypto, since there isn’t any regulation, at least in 2021, the scammers have really found safe heaven.
Since you have read this far, I would like to share some of my own ending thoughts,
- Never in your life trust any Influencer, doesn’t matter if you know him/her for years. If you are buying a coin that should completely be your own decision.
- Keep doing your own research to find truly undervalued projects. That is a far better way to gain wealth than participating in a pump/dump scheme.
- Avoid retweeting and sharing shitcoins on Twitter. These fake giveaways and promotions help only these scammers to suck out your valuable Bitcoin or ethereum from you.
- Keep looking for obvious red flags. No team, No Research, No Innovation is namely among many key indicators.
The most crucial part of being safe from these schemes is to cross-check everything that you see online. Don’t trust your favorite influencer who you may follow who hardly mentions anything about cryptocurrency and randomly starts to promote a token. These projects try to create a FOMO among the investors and dupe them of money. If FOMO strikes you in, don’t fall for it. Always ask someone who understands things better than you and do your research.
Try to avoid Charity Tokens as well. They may have some sort of emotional bonding attached which is done to make you feel comfortable while investing. Just avoid those coins altogether. Keep holding your own Bitcoin and do your own thing.
Finally, don’t play short-term games with your money. Please don’t risk your savings for making quick gains. Until the market is regulated, it is unsafe to invest behind these crypto shills.