Pump & Dumps Explained & The Red Flags

Pump & Dumps Explained & The Red Flags

By Scott Cunningham | Crypto & Things | 1 Jul 2021

Pump and dumps are a problem in the stock, but in the crypto space, they are rampant. With little to no regulation, founder anonymity, low barrier of entry, and coins popping up daily, you need to know the red flags to look for and how to spot a pump-and-dump.

In this, I will cover what a pump-and-dump is, what are some red flags, my recommendations, and some examples of pump-and-dumps to give you some insight on them.


According to Investopedia these are the main takeaways regarding a pump-and-dump:

  • Pump-and-dump is an illegal scheme to boost a stock's or security's price based on false, misleading, or greatly exaggerated statements.
  • Pump-and-dump schemes usually target micro- and small-cap stocks.
  • People found guilty of running pump-and-dump schemes are subject to heavy fines.
  • Pump-and-dump schemes are increasingly found in the cryptocurrency industry.


The difference with cryptocurrency is that many times the people making all the money are anonymous and there is little regulation within the crypto industry so these crimes typically go unpunished. It’s made that much easier for these scammers given the unrealistic expectations people have in the crypto market and celebrities lending influence to these projects and effectively legitimizing them because they don’t the time or expertise to look into them.


Red flags to identify a possible pump-and-dump:

  • Tons of press and hype
  • Well above average gains recently with price action becoming parabolic
  • The cryptocurrency moves drastically without any justifications or changes made
  • The target demographic is not experienced/veteran users who could identify the scheme
  • Typically, on low cap stocks and cryptocurrencies
  • Huge social media presence that came out of nowhere (likely purchased & fake)
  • No easy way to verify their claims
  • You were specifically “chosen” to be part of this opportunity


You have to be mindful that pump-and-dumps are self-fulfilling. Once they get enough people in, they can use the price movement to market others into the scheme. It generally runs in 4 phases: acquisition, promotion, distribution, and then the dump. They first acquire the asset, then they promote it, finally once everyone is in, they sell, then once they stop marketing it and holding up the price it falls drastically and regular investors sell out causing it to fall further.


There are countless pump and dump groups that try to move tokens together, but you have to consider that these groups are usually made for the victims and those on the inside have already made their money off the scheme. It’s not worth trying to time it because only a few people who set it up knew when to get out. It’s especially concerning when you have to pay to be in the group too which is like a double scam.


A perfect example was Mark Cuban recently getting rug pulled on the Titan cryptocurrency. Rug pulled simply means the final phase of a pump-and-dump where they sell everything and crash the price. https://markets.businessinsider.com/news/stocks/mark-cuban-says-he-lost-money-trading-defi-token-titan-that-crashed-to-zero-2021-6-1030533245?op=1

Like this article and many others laid out, the price of Titan went from $60 to nearly $0 in one day. It was part of a stablecoin project called Iron Finance that was promising. There were claims that with certain pairs to TITAN, you could get up to 50,000% APY. More importantly, even a famous wealthy successful businessman like Mark Cuban can fall for great marketing and participate in a pump and dump so you need to be even more careful and cautious than him.


I think this site that checks pump and dump trading groups says it all when there are 0 approved groups from the 40 best groups: https://safetrading.today/traders/pump-and-dump-signals/


There are so many pump-and-dumps that are ongoing, but they aren’t always easy to spot because a pump and dump doesn’t have to go to $0 to be “dumped”. The investors convinced by the scheme may stay in hoping to get their money back, but they may be left waiting forever or it could be that the founder or whoever dumped may be waiting for a round 2 if people are gullible enough.


In my opinion, you should be very cautious when you see a high APY because the higher it is, the less sustainable it is and the more likely it could just be a pump-and-dump. The best way to avoid these entirely is to invest in what you know, avoid low-cap cryptocurrencies, and don’t chase yields. It’s the same with stocks. In the stock world, 10% is considered an insanely high yield, so when you see 50%, 100%, 200%, or 10000% in crypto, you should know that something is up.


This happens all the time with stocks too, it’s just much more regulated and with no anonymity, there is accountability so you don’t see it as much. However, if you are into penny stock trading, then you may be all too familiar with pump-and-dump schemes.


I’ve explained a million times before that you need to have high conviction in what you invest in. You don’t just look for a random coin that you hope will 1000x and go all in. This is pure gambling and not a strategy of any kind. People have become too desensitized to huge gains and now have extremely unrealistic expectations in DeFi.


To protect yourself and those around you, keep it simple, don’t spend your time looking for sh*tcoins to invest in and instead focus your time and energy on the few good assets you’ve heavily researched whether it’s crypto or otherwise. Also, if you see a video or content from someone promoting a coin, see if they hold it themselves and if they were paid to make the content as that’s usually a clear indication of whether they actually believe in it or not.


Have you ever been in a pump-and-dump? What are some examples of pump-and-dumps that you have seen in crypto? What red flags do you watch for? What do you invest in? Let me know what you think about this in the comments below and don’t forget to subscribe!


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*Disclaimer: This is not financial advice and is purely for entertainment purposes. What you see, hear, or read is my personal opinion, and any statements made are based on my views and should not be misconstrued as fact. My crypto portfolio may or may not be simulated*


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Scott Cunningham
Scott Cunningham

I am the host of Crypto & Things and a huge social blockchain enthusiast using what I believe to be the next level of social communication. I make educational content, review platforms, and interview cool people. Links: http://www.scottcbusiness.com/

Crypto & Things
Crypto & Things

I am the host of Crypto & Things and a huge social blockchain enthusiast using what I believe to be the next level of social communication. I make educational content, review platforms, share my passive & crypto income journey, and most importantly, I get the opportunity to interview and chat with so many amazing people in the blockchain, cryptocurrency, and tech space every week and share it all with you. Links: http://www.scottcbusiness.com/

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