How to Protect Yourself from Coin Pumping

GUIDE TO IDENTIFY A PUMP AND DUMP SCHEME

A “pump” occurs when someone or a group of individuals artificially boost the price of a cryptocurrency and a “dump” occurs when they sell off large quantities of the cryptocurrency to take advantage of the increased price before it settles down below its original price. Pump and dump schemes are nothing new - they are a form of securities fraud that have existed for decades and originally focused on the equity markets. More specifically, on small-cap stocks. An equity markets pump and dump scheme works like this. A small group of investors select and purchase shares in a company with a low market capitalization, thereby causing an initial jump in price.
The easiest way to identify a pump and dump scheme is when an unknown coin suddenly rises substantially without a real reason to do so. This can be easily viewed on a coin’s price chart. Coincheckup, for example, has set a benchmark of a 5% price increase in less than five minutes as its indicator. Also, when you see paid news articles about a small cap coin appearing in combination with a surge in social media activity surrounding that particular cryptocurrency project, this could be the sign of a pump taking place. If an entirely unknown coin with market capitalization of only a few million dollars suddenly appears all over Twitter and Facebook, one should be wary.<ul class="a-unordered-list a-vertical">

How to protect yourself from pump and dumps

Pump and dumps are generally confined to coins with very low trading volumes and market capitalizations. By avoiding illiquid cryptocurrencies, your chances of falling victim to a pump and dump are substantially reduced. Furthermore, not following investment advice on social media or from paid news articles will also prevent you from making preventable losses due to this type of market manipulation. You cannot be confident that crypto media organizations will have done any vetting of coins they feature, and oftentimes these articles are paid for.
A good rule of thumb is to remember that anyone promising that they know which crypto coin will pump next, likely has an ulterior motive. A sudden jump in price without real verified news backing the increase is an indicator of a potential pump and dump scheme unfolding. Hence, if the price chart says a pump is underway, it is best to avoid the coin altogether unless you have done your research on the digital currency and its potential future value.
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