Know-How Pump and Dump Frauds Affect Your Crypto Trading

At the start of trading crypto securities, pump-and-dump frauds were prevalent. This is the idea that when a scarcely traded asset (such as a risky investment) becomes cheap, then people buy it. As more investors invest in the asset, its price will continue to rise. 

The scammer sells his or her stake to other customers after the price has been "pumped". The price plummets because they own so many shares. These are some tips that you need to be aware of.

The pump-and-dump scam is a stock-price-inflating method that uses recommendations based on incorrect, fraudulent, or excessively inflated information.

Traders who engage in pump-and-dump trading prefer to communicate through social media platforms and anonymous messaging apps such as Telegram.

To artificially increase interest in security and drive up its cost, the advocates of this scheme spread misinformation and rumors.

What's the process of a cryptocurrency pump and dump?

The key ingredients of pump-and-dump scams are a group of tech-savvy, organized gamers. Investors often join the team and provide funds to buy tokens and increase demand. Scammers may be able to control the supply of tokens that are not traded in high volumes and fix their prices by purchasing large quantities.

The inner team focuses on artificial supplies, while another team works hard to highlight the tokens' positive sides. Scammers used word of mouth to convince customers to purchase dump stocks and pump stocks. Today, scammers use social media platforms such as Telegram, Facebook, and Twitter to encourage crypto buyers. Scammers can even set up organizations and hire influencer marketers to spread the word about the tokens.

How do you recognize a pump-and-dump cryptocurrency scheme?

The easiest way to recognize a pump and dump is to understand the blockchain mechanism. If the value of an unknown currency is changed quickly, there's a good chance that manipulation is taking place. Before you make any purchase, do some research. It is important to do your research before you jump into any project.

While you may lose some money if your investments are delayed, having more confidence in your investment will give you greater peace of mind over the long term. You could save money if you do a pump-and-dump.

How to Avoid Cryptocurrency Scams

In an unregulated economy, it is easy to fall for scams.

Don't rush to buy a cryptocurrency that is relatively unknown. Look at the token and then read its white paper.

This is a good way to check if cryptocurrencies have the potential to increase in value over time.

These are red flags if the project claims too many advantages, does not have a clear development plan or has been associated with bad actors in the past.

A red flag is when people you follow talk about cryptocurrency all of a sudden.

Most exchanges will show all open orders and the order history for an item. The trading activity trend can be viewed.

Bottom line

You should consider why someone might give you a stock tip if you don't already know them. It's unlikely that you will see a significant and rapid return on your investment. You should also conduct your own research or consult with an expert organization like Errna prior to making any investment. You should avoid falling for "pump-and-dump" schemes.