How to Spot Crypto Pump-and-Dump Schemes

How to Spot Crypto Pump-and-Dump Schemes

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Digital assets really are a frontier, and so it's no real surprise they draw their share of outlaws.

When this story is shared on social media marketing, inevitably some automated accounts, run by bots, will respond, share and retweet it with their followers, and in this, advertise a number of projects. While some of these projects will definitely be above-board with varying prospects for success, others will undoubtedly be fraud or scams.

In the bewildering world of cryptocurrencies, where it seems like a new product or strategy launches every minute, it can be very difficult to share with the difference.

But in accordance with Adam Carlton, CEO of Pink Panda, an application token for a delicately designed digital wallet, there's one common scam that becomes super easy to identify even as we learn the signs: the pump-and-dump scheme.

The schemes

Pump-and-dump schemes exist through the entire investing universe, Carlton said, but due to the newness and popularity of digital assets, they are especially prevalent. In the scheme, holders of a low-value asset promote and “talk it up” to encourage others to get and increase its price. When the purchase price reaches a particular point, the orchestrators of the scheme sell, take their profits and disappear before the price drops, with later investors left holding the bag.

“There are two types that are probably the most prevalent right now. One is where insiders of the token are promoting it and stirring up most of the hype while on the backside, they're selling it slowly,” Carlton said. “Others target tokens and rally a group of that token community's members to purchase, which trigger algorithms, which trigger bots, who buy too, and whoever buys last and doesn't sell is left holding the bag.”

The first type of scheme can happen in any kind of token, but the next typically targets smaller, less well-known tokens, whose costs are more straightforward to pump up.

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