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Crypto Scam 101: Pump and Dump Schemes

Crypto Scam 101: Pump and Dump Schemes

When Gabriel deposited his first $100 into a popular crypto app to invest in crypto, he didn’t really understand what investing in crypto was all about. So when he saw on Twitter that a certain “Rup Coin” was going to blow up and “hit the moon” in a week, he quickly found the link and bought $100 worth with all his money. 

True to predictions, the value of the crypto-coin rose at a crazy speed. In two days, his $100 was worth $300. He had easily tripled his investment. He was eager to see what it would be worth by the end of the week.

Gabriel was shocked when he woke up and found that his $100 was not worth $10. He was convinced it was a glitch in the app and refreshed it multiple times. The money remained at $10. It had only been a few hours since he saw the money at $300 just a few hours ago. 

The Twitter account which posted the coin started tweeting that it had warned people to DYOR and NFA. Gabriel was shocked and confused. He had fallen victim to a pump and dump scam. DYOR means “Do Your Own Research” while NFA means “Not Financial Advice.”

Crypto Scams

As cryptocurrencies get more popular and mainstream, so have the methods to steal them from unsuspecting investors. Protecting digital assets is a task that crypto users and investors have to take seriously. 

In the course of this article, we’d be talking about the popular crypto scam, Pump and Dump, and how to make sure you’re not a victim of this terrible scam.

Pump and Dump 

“Pump and Dump” scams are not peculiar to the crypto industry alone. They also affect the traditional securities market like stocks (shares). However, unlike crypto, stocks are very regulated by the government and financial regulators. Due to the individuality, the work of protecting your digital assets is left to you. 

If you’ve seen The Wolf of Wall Street, then you would understand the idea behind pump and dump schemes. 

It basically involves a small group of insiders artificially inflating the price value of an asset – in this case, a cryptocurrency, getting new investors to invest, taking their money, and getting the price to crash. 

The creators of the scheme inflate the price value via publicity and spread awareness of the coin. When unsuspecting investors encounter the publicity efforts, they get caught in the promise of making quick money and buy some units of the coin.

After the new investors put their money in, the insiders sell their own coins. The value of the coin comes crashing down, exposing its real value and the insiders walk away with all the money while new investors are left with nothing but regrets and worthless assets. 

How to avoid this scam

Due to the volatility of cryptocurrencies, pump and dump schemes are not as easy to spot. However, you can evaluate most of your investment decisions with these few steps. 

Do your due diligence

As a new crypto investor, it can be tempting to jump on trends and juicy opportunities but you have to be careful so as not to fall victim to scam coins like these. Do a lot of research on the existence and credibility of a coin before you invest in it. Find out who or what is behind it and check if it is listed on credible exchanges, not just on one. 

Invest in utility

Most coins increase in value because they are either useful or being bought by a majority. If a coin has no utility and is just being marketed by influencers and social media ads, you should generally avoid them.

Only invest in coins that have real-world applications and are being accepted by a majority so as not to fall victim to a valueless asset.

A lot of times, the ability to not fall for pump and dump schemes requires some experience in investing. The more seasoned you are as a crypto investor, the more likely it is that you can spot a scam from a mile away. Keep learning and investing in crypto, it’ll do you a lot of good. Don’t forget, this is NFA.

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