What is Pump and Dump Crypto? When you are new to the crypto investment school, you will often hear these two terms discussed a lot in trading groups or on telegram chat groups. This is a form of market manipulation by people with a lot of money aka “sharks” and “whales”.
1 – What is Pump and Dump Crypto?
Cryptocurrency pump and dump is a term that refers to a form of manipulation that “pumps” and “dumps” prices in the cryptocurrency market. However, this term does not only exist in the cryptocurrency market but also in the stock, gold, and forex markets.
In the cryptocurrency market, Pump is when “sharks” (people with large capital, want to manipulate the market) pump price into a certain coin by spreading good rumors to attract new people. . They will then use large amounts of money to buy a large amount of this coin, causing the coin to increase in price.
When attracting a large number of people to invest in the coin is pumped (inflated). According to the law of supply and demand, if demand is more than supply (buy more than sell), the coin price will increase.
At some point, the price of this coin reaches the top of the price target of the “sharks”, then they begin to sell off the coin to lock in profits.
This action affects the psychology of new investors, they will also massively sell coins, leading to a serious drop in price. This is called Dump.
So, to put it simply, pump is a price pump, and dump is a coin that is sold off leading to a serious drop in price.
This form of Pump and Dump is considered an illegal fraud scheme of the “sharks”.
2 – Signs of pump and dump
The first sign often seen is that the “sharks” often spread good rumors about the coin. At this time, new people, with little knowledge and experience, will buy this rumored coin. This is the beginning of the Pump process.
At the beginning, the coin price increased and decreased very gently. There are many different accounts created to discuss the potential trend of this coin’s value on the forum, for the purpose of spreading rumors.
When the price of this coin reaches a level that is right for the purpose of the “sharks”, they will start selling them out in batches. This is a sign that the Dump process is in progress.
3 – Important notes for new investors
The first note is that you should limit investing in small-cap coins, because these coins are easy to price when bought in large quantities by someone. Acceptable capitalization is 500,000,000 USD or more.
Coins whose price peak is higher than the past peak should not be bought. There is a high chance that you will have a peak swing.
You should choose a large exchange like Binance to invest coins to avoid encountering junk coins.
Do not put all your investment capital into 1 coin, allocate capital to invest 5-10 different coins to minimize risk.
Coins should only be bought at a price lower than the previous peak.
Do not borrow money or pledge assets to invest coins. Only use the amount you can accept without affecting your life.