HOW TO SPOT CRYPTO PUMP-AND-DUMP SCHEMES

How to Spot Crypto Pump-and-Dump Schemes

How to Spot Crypto Pump-and-Dump Schemes

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

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

In the bewildering world of cryptocurrencies, where it appears as though a new product or strategy launches every minute, it can be quite difficult to share with the difference.

But according to Adam Carlton, CEO of Pink Panda, a utility token for a delicately designed digital wallet, there's one common scam that becomes super easy to recognize as we learn the signs: the pump-and-dump scheme.

The schemes

Pump-and-dump schemes exist through the investing universe, Carlton said, but because of 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 certain point, the orchestrators of the scheme sell, take their profits and fade before the cost drops, with later investors left holding the bag.

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

The initial kind of scheme sometimes happens in any kind of token, but the 2nd typically targets smaller, less well-known tokens, whose costs are simpler to pump up.

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