Crypto 101. Spotting a pump and dump is quite hard and usually when one does, it could be too late. Basically, a pump and dump is where huge investors or "whales" purchase massive amounts of a cryptocurrency in order to pump it up. As the name suggests, the crypto whales would then dump the coin and make a profit.
CND/BTC Pump and Dump
On June 6, 2021, there was a particular pump and dump on Binance that took place with CND/BTC. Signals of the pump and dump aside from the price saw 88 million coins bought as per the volume indicator. The coin peaked at 0.00000091 before going all the way down to 0.00000054.
The coin initially started at 0.00000062 before the official pump and dump began and when it did, in only a matter of seconds, the traders found themselves either with massive profits or massive losses. While people might make money off of pump and dumps, there is actually a danger in investing in these types of trades.
Are Pump and Dumps Safe?
A pump and dump is incredibly risky especially if traders aren't able to dump their coins at the right time. Those who gain are those that are able to buy from the very bottom and sell the coin right at the peak. This, however, isn't always the case.
Some traders are left either with more money than they put in, or much less than what they had put in. The results of the pump and dump saw the coin drop to a lower average than it initially was sitting for.
Pump and Duump Crypto Schemes
Although pump and dumps are generally profitable for those with fast hands, they pose a great risk for those that aren't capable of jumping on and jumping off fast enough. The success of the pump and dump also depends on the volume of traders. The more traders there are, the more variance the pump will have.
If there are only a few traders all with large amounts, the crypto traders can only expect the coin price to spike and immediately drop. If there are a lot of traders within the dump, traders can then expect more variation in the pump as traders purchase at different times.
Read Also: El Salvador President Notes No Capital Gains on Crypto Due to It Being a 'Legitimate Currency'
What are Pump and Dumps?
According to the article by Investopedia, a pump and dump is some kind of manipulative scheme that attempts to boost the total price of stock, security, or coin, through fake recommendations. These types of recommendations are basically based on false, misleading, or even greatly exaggerated statements.
The perpetrators of these particular pump and dump schemes have most likely already positioned themselves within the company's stock and are expected to sell their position once the hype has led to higher share prices. This practice, however, is considered illegal based on securities law and could lead to some pretty heavy fines. To spot a pump and dump, look for massive spikes that oftentimes do not even last aa couple of minutes.
Related Article: Crypto Whales' Top 3 Coins 2021 | Why is Ethereum Still Their Number One?
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Written by Urian B.
