Information is everything. And in financial markets, information is everything and even a little more. Imagine that someone told you, of course, under secrecy, that one or another altcoin is about to grow in value? Few people in this situation will refrain from buying it. This is the instinct of the pumpers, or the manipulators, who initiate sharp hikes of cryptocurrency rates for their own purposes.
A typical pumper will not wait for a coin to go up naturally. They will use all means available to provoke this growth. I do not want to believe that serious people are behind fraudulent schemes; nevertheless, groups of newcomers cannot influence the rate in such a way that the currency is bought up on a massive scale. Almost all the pumpers are movers of the crypto market, and as long as legislation does not recognize pump and dump schemes as a crime, we will have to put up with their existence and try to protect our assets from the manipulators.
A "pump" is the artificial inflation of a particular coin's value, initiated by a party that aims to sell the asset at its peak price. The scheme works very successfully, and the number of subscribers exceeds several thousand in specialized pump groups in Telegram.
Let us look at the mechanics of the process. To increase the value of the asset, it is necessary to ensure a stable demand for it. By launching a wave, a group of pumpers buys a coin on the exchange without any serious reason. Their main task is to convince the traders of the crypto market that the price growth is due to some legitimate reasons and will be stable. All resources are fair game to maintain the idea, from insiders who will whisper about the prospects of the coin, to the official media resources, which in the flow of general information will not have time to weed out seeds from chaff.
An important role is played by the groups on Telegram, where signals are received about the start of a pump on one or another exchange. Participants are given the name of the coin which is worth buying immediately, and the exchange, where it should be purchased. Having trusted this information, investors, perhaps without knowing it, are involved in a manipulative scheme. By increasing the demand for the cryptocurrency, they raise its price. The unluckiest are those who buy the coin at the peak of value, not having time to realize the artificial nature of the price increase.
Pumps are inevitably followed by a dump, or a sharp drop in the asset's price. Having overstated the value of the coin to impossible heights, the organizers of the pump discard the currency, arranging to dump immediately after the speculative growth. For the sake of fairness, it should be noted that some Telegram channels specializing in pumps and dumps warn users about the upcoming "drop," but few people have time to act on the information, which often only takes a few minutes.
Pumps and dumps take place, as a rule, on altcoins with low capitalization. It is difficult to imagine what resources a person or group of people should have to pump, for example, Bitcoin.
To protect yourself from involvement in such schemes, we have identified the main signals of pump and dump activities on exchanges:
The information attack takes place suddenly and without reason on forums, on Telegram, and sometimes, as we mentioned, in the media, as all of these channels banter on about the same currency in the light of its investment attractiveness.
Such information seeps from insider sources. Even if your best friend tells you about a possible sharp take off of an asset, the information should be rechecked.
Together with the information attack, the organizers of the pump establish a support line on the exchange, preventing the asset from falling in value against the intended goal.
With the help of bots, fake orders are placed, which provoke the growth of rates.
There is an active buying up of the coin, which previously did not foreshow any distinctive profitability.
It is unfortunate, but true that pumps can be repeated several times. That is, having reached the limit of value, the organizers of the adventure are dumping their assets, but the belief of ordinary investors in the prospect is so strong that they are not against raising the price again.
It is for good reason that we educate you about the intricacies of analyzing cryptocurrencies. So, if you notice a sharp increase in the price of an asset, do not be too lazy to examine its graphs. Any inorganic growth will be there anyway. Learn to analyze and do not fall into the traps of pumpers.