Cryptocurrencies and blockchain technology may be relatively new in the financial world, but they are vulnerable to the same classic scams and ponzi schemes that have been in traditional markets for centuries. This also includes the pump-and-dump groups, in this article we will continue on this topic.

Illegal

Pump and dumping groups are illegal in traditional securities markets and are subject to severe penalties. But in the largely unregulated world of the cryptocurrency market, everything is slightly different. This is an attractive environment for unscrupulous groups who want and are able to abuse. Abuse of the hype around everything that has to do with blockchain and cryptocurrency.

We will continue to break down the basics of how a dumping and dumping group works, as well as the most common "red flags" that help you stay away from them.

The pump

Pump and dump groups work in a relatively simple way. The scam usually involves artificially inflating the price of a less popular token by spreading false news or inflating as many "buyers" as possible who are ordered to buy a particular crypto token.

A less popular crypto token, or "shitcoin", is purchased by a group and attempts are made to make it go viral through social media channels.

Tokens that are easy to manipulate are mainly used. These tokens often have a relatively low circulating offer and a small market value ('market cap'). Often Telegram groups are used to reach a large group. In a group, the 'shitcoin' is 'felt', and then the token is bought en masse.
The result is that the value of the token will increase. But even before the shitcoin is mentioned, the group behind the channel has already made a big impact.

At this moment the "pump" is getting a grip on social media, so external investors start buying the token. At the moment, smaller investors often buy in because of the FOMO effect (fear of missing out). This further increases the value of the token.

The dump

Once the pump has ensured that the value of the token has increased sufficiently, the original pump group then sells their digital currency. This takes place in a coordinated movement, in which they sell their partly to the new, unsuspecting investors. This massive sale causes the value of the token to plummet and the token price to be "dumped".