4 Lessons to be Taken From Crypto Pump-and-Dumps
Due to the massive popularity of cryptocurrencies like Bitcoin, Ether, and Dogecoin, crypto enthusiasts see them as the future of global money. Unfortunately, where there’s money to be made, scammers are never far behind. According to a study by the University of Technology Sydney and the Stockholm School of Economics, there were 355 instances of crypto pump-and-dump schemes in just seven months in 2020, generating millions of dollars for the organizers.
These schemes often involve social media influencers who receive financial incentives to promote a specific digital coin and increase its value. Once the value goes up, scammers and influencers sell their coins and pocket the profits, leaving investors with a devalued investment.
Protecting yourself from significant losses requires learning from past scams and recognizing the warning signs of crypto pump-and-dump schemes.
1. Obscure Crypto Assets With Limited Information Are A Dangerous Investment
When it comes to pump-and-dump schemes, the perpetrators tend to focus on cryptocurrencies or stocks that have a low market cap, low liquidity, and a lack of reliable information.
To avoid falling prey to pump-and-dump schemes, it’s crucial to conduct thorough research on new cryptocurrency projects. Trusted third-party sites like CoinMarketCap and CoinGecko can provide valuable data on a project’s leaders and roadmap. If you can’t find these details, the project may be a pump-and-dump scheme in disguise.
One way to minimize the risk of getting caught up in a pump-and-dump scheme is to stick with cryptocurrencies that have a proven track record in the industry. When dealing with small-cap tokens, it’s important to approach them with a healthy dose of skepticism.
2. A Flood Of Social Media Campaigns For New Coins Or Tokens Often Prelude A Scam
Many crypto pump-and-dump collectives use social media platforms, where they typically copy and paste their messages, sometimes using paid influencer endorsements to create the appearance of legitimacy. The key players in these scams initiate the process by circulating false or misleading information about a token to attract retail investors.
If these tactics are successful, the result is a surge in demand for the targeted cryptocurrency. As soon as the token’s price begins to skyrocket, the pump-and-dump fraudsters will sell off their holdings. The resulting sell pressure drives the token’s value down, resulting in significant losses for those who purchased at or near the peak price.
3. Crypto Pump and Dumps Offer Guaranteed, Unrealistically High Returns
In the world of crypto-related scams, lofty promises of specific returns with minimal risk to the investor are all too common. If a crypto project ever pledges a guaranteed return on investment, there is a high likelihood that it is a Ponzi scheme or a pump-and-dump scheme.
Scammers aim to stir up a sense of FOMO in their targets by promoting the notion of missed opportunities and the success of others. However, the truth is that only those running the scheme are guaranteed to profit or achieve significant returns. Investing in crypto assets comes with inherent volatility and risks, and there is never any assurance of profit, let alone substantial gains.
4. Crypto Scams Result In Random Spikes In Trading Volume And Price
Market manipulators running pump-and-dumps often operate behind the scenes to create a sudden increase in trading activity for a small cryptocurrency. This is because these tiny projects, which are commonly used in most crypto scams, have low volume and liquidity, making it easier for the schemers to hide their operations.
Due to the under-the-radar status of these cryptocurrencies, the capital needed to make significant price and volume movements is relatively low.
Avoid Scams By Getting The Best Crypto Legal Advice
The absence of precise legal direction and federal regulations concerning crypto pump-and-dumps has created numerous legal gray areas that impact the blockchain and cryptocurrency sector.
This is why you need a knowledgeable, experienced cryptocurrency lawyer in New York. Contact the Warren Law Group and take advantage of our experience in cryptocurrencies, blockchain offerings, and control and protection of your digital assets.
