How to avoid cryptocurrency pump-and-dump scams

Have you ever felt the bombardment of social media? Just go to Twitter or YouTube and you’ll see a continuous stream of ads, right? In addition to all kinds of advertisements, you should also be alert to scams. You are not the only victim of this.

The growth of social media in recent years has also taken scams to new heights. This is because social media can influence people’s perceptions of potential investments. Therefore, you must be cautious about cryptocurrency opinion leaders and any promises to get rich with questionable coins. One of these scams is called pump and dump, and if you don’t want to fall victim to a “rug-pull” scam, read this in-depth. In order to help you gain a deeper understanding, let’s analyze in detail, what is pumping and how to operate this trick.

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What is a pump and dump scam?

Pump-and-sell is a fraud that uses hype and misinformation to create a false interest in a token or currency that has no known, immediate purpose. Initially, scammers would accumulate large amounts of dubious currency when prices were low, and then use social media marketing to drive up prices.

In the past, pump-ups were often peddled through word of mouth. Now, with the rise of the Internet, most of the false information is spread through social media platforms, forums, videos and other online media. Scammers also partner with investment opinion leaders , offering them financial incentives to incite users to inflate currency prices.

Once prices have peaked and misinformation has sparked a buying frenzy, scammers and influencers will “dump” all their cryptocurrencies by cashing out for huge profits. This sell-off can cause the coin to trade well below its original price. Most holders will not be able to sell in a timely manner, that is, they will become trapped in these problematic tokens, resulting in property damage.

Note that there are various pump-and-dump scams out there, all of which are illegal and can have serious consequences (such as huge fines) if caught.

To help you understand how it works, let’s look at an example.

Suppose a very famous rapper and crypto influencer, Soup Doge, advertises a token (let’s call it MoonSoon ) in an Instagram post. The price of MoonSoon soared under the influence of the Soup Doge post. But a few days later, the developers behind the token began selling all of their holdings. Since you don’t know anything about the impending crisis situation, you can’t sell your tokens, at which point the raw price starts to plummet. Soon the money you invested disappears, and so does MoonSoon. This is a case of many people being deceived by cryptocurrency opinion leaders.

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How does the cryptocurrency pull-up bid scam work?

The huge question behind pump-and-dump scams is, why do they work so well? This scam has been around for a while, so what is it that draws people into the pump-and-dump trap? The answer is that this scam exploits people’s FOMO (fear of missing out) psychology. Due to misinformation and hype, many investors are so excited about making money that they rush into investing without proper research. They don’t want to miss out on opportunities and will buy on impulse.

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Initial Coin Offerings (ICOs) and pump-and-dump scams

Scammers also conduct initial coin offerings (ICOs) (similar to fundraisers) in order to get more out of pump-and-dumps. Investors who believe in a certain token will put money into its development, and in return, they will be rewarded with new tokens, which the ICO will use to further develop the token.

Unfortunately, not all ICOs work this way, as some of them are scams. Many scammers target ICO investors because they are ready and willing to buy. Additionally, there are “pump bots” that can buy and sell in seconds. Even with a legitimate ICO, sometimes these pump bots can still operate, have users, and influence tokens, investors, and prices at the start of the offering.

To understand the difference between a safe ICO and a fraudulent ICO, you need to understand what constitutes an ICO. First, a secure ICO usually has a fully published white paper that includes the content of the project, the application or use case, the requirements to complete the project, and how much funding is required.

Fraudulent ICOs can have the following red flags:

• No white paper
• The white paper’s operating model is unrealistic
• The person behind the ICO is falsely identified or has a history of fraud
• The ICO’s roadmap is not detailed or clear enough
• Suspicious ICO code
• Difficulty reaching developers during Q&A

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A case of pump-and-dump scam

Now that you know what a pump-and-dump scam is and how it works, let’s discuss some notable cases.

FaZe Clan and Save the Kids Cryptocurrency:

Several members of the esports organization FaZe Clan expressed support for a new token: Save the Kids, promoting the cryptocurrency through a series of tweets and videos. People bought the coin one after another, and a few days later, its price dropped by 60%. FaZe Clan members who were part of the scheme touted interest in Save the Kids and then possibly slapped investors. While members of the Clan deny this, the Save the Kids cryptocurrency does look a lot like a pump-and-dump scam. The members involved in this scam have since been banned or removed from FaZe Clan.

Tana Mongeau and TitsCoin

Influencer Tana Mongeau promotes her own cryptocurrency on her Instagram Story, acting similarly to FaZe Clan’s scam. Long story short, this is a blanket cryptocurrency. That is to say, she attracted investors to buy suspicious currency, and then carried out a blanket withdrawal operation.

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How to avoid falling into a pump-and-sell scam?

We’ve discussed pump and dump scam examples, red flags, and basics. Now, let’s discuss how to avoid this scam. Follow the advice below to protect your hard-earned capital and avoid falling into the trap of pump-and-dump.

Research

Part of identifying a pump-and-dump scam is doing your own research. If you want to know if a coin is a scam, you can check its white paper and do research on the companies that fund the coin.

If it’s too nice…

While there are occasional exceptions, keep in mind that if a situation sounds too good, it usually isn’t. If the conditions are very good and meet all your requirements for cryptocurrency, be sure to be vigilant.

Be suspicious of sources of information

If the pump-and-dump program is an attempt to lure investors, they launch various market materials and press releases. It’s easy for developers to create fake websites and social media accounts, so don’t put too much faith in what they post. Be sure to look at these sources of content with skepticism, and be sure to find authentic sources you can trust before making an investment.

Avoid cryptocurrencies from /r/CryptoMoonShots

If the cryptocurrency or project you want to invest in is being promoted in the reddit section above, it is likely a scam. The sole purpose of CryptoMoonShots is to promote bad cryptocurrencies. Also, stay away from cryptocurrencies with names like “elon,” “safe,” or “moon.”

Understand the routine of pulling up shipments

Understanding the pump-and-dump routine is the key to avoiding being scammed. Please read the red flags in this article carefully to see if they match the project you are investing in.

Conduct background research on those involved

Doing background research on a developer will not only help you understand their skills and experience, but will also let you know if they are hiding their identities. Most blockchain projects certify their legitimacy by publishing the developer’s name and photo on their website and LinkedIn page. That is, if they do a blanket operation, you’ll know who’s in charge.

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Stay safe in the cryptocurrency space

Since tokens and cryptocurrencies are a nascent field, scams abound. Whether it’s a cryptocurrency pump-and-dump scam, or something else, always be wary of anyone trying to take advantage of you.

However, don’t let these scams stop you from entering the world of cryptocurrencies, there are still many quality and safe cryptocurrency companies out there. All you need to do is exercise caution by making sure to go through a series of safety checks before deciding to invest. Remember, use your wits to stay safe and most importantly, do your own research.