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How do crypto pump and dump scams work?

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Crypto pump and dump is a rich quick scheme where people can take advantage of the volatility and can buy at a low price and sell at a high price.

Crypto Pump and Dump

The cryptocurrency market is highly volatile, so market manipulation occurs more frequently. It is an attractive program because people are more interested in pumping and dumping. As on the surface, it seems to be a good plan to get rich quickly where you can take advantage of the volatility. You can buy at a lower price and sell at a higher price. This strategy of pumping the price of Bitcoin and any other cryptocurrencies is contrary to the terms of use of most cryptocurrency exchanges in India.

What Exactly is Pump and Dump?

In the pumping and dumping system,  A person or a group of people first buy tokens at a low price and spread false or misleading information in order to create a buzz that will “pump” the tokens price and then “dump” tokens by selling their own tokens at a higher price.

Pump and dumps are primarily pyramid schemes. It is a process that starts when an organizer selects a day and time for the pump and shares this information among the members, usually through discord or telegram.

The members then invite more members and hype up the event. Mostly there are incentives involved such as giveaways or receiving an advantage.

On the day of the pump a few minutes, hours or even days before the pump day, the organizer selects a coin and buys it at a low price. When the pump time comes around the coin is announced as a pump signal and organizers start offloading after adding a margin onto members.The pumping part involves members buying the coins and selling it at an even higher price to other members as long as there’s a demand. 

Normally there is a huge spike in the first few seconds which can continue indefinitely, followed by a huge crash. The crash happens because the bag holders or final members realize that nobody else wants the coin any more, and they desperately try to sell off everything, often at a loss.

Even for that matter, the bitcoin price has also been pumped and dumped multiple times in the past.

Where artificial demand is created initially that is caused by members who think they can buy the coin at a cheaper price than the next person. These events are zero-sum games meaning that they don’t generate any additional value the people at the front take from the people at the back with the biggest winners being the organizers themselves if you think this is really dirty and unethical you’re right but the reason why these schemes work is because they play off of people’s greed similar to gambling.

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