Paper-Hands, Iron-Hands… none survives this fury.
Have you ever experienced a sudden surge in a cryptocurrency price, only to crash shortly after? You might have encountered a pump-and-dump scheme, a common crypto scam that artificially inflates a cryptocurrency’s price before dumping it, leaving unsuspecting investors holding worthless tokens. A February 2023 chain analysis report found that 24% of crypto tokens launched in 2022 were suspected scams, defrauding investors of a staggering $4.6 billion.
This article explains how these schemes work; the warning signs to look out for, and how to keep your money safe.
Here’s how pump-and-dumps work:
Imagine a group that owns a specific cryptocurrency. They spread false information to inflate its perceived value, leading to a price surge. When excited buyers jump in, the group sells their coins at a high price, making a hefty profit. With no real reason for the price increase, it dramatically drops, leaving late buyers holding worthless coins.
These schemes often use platforms like Telegram and typically starts with a leader gathering influencers to buy a targeted cryptocurrency. They aggressively promote it on social media, promising unrealistic profits and guaranteed returns. They then coordinate a sell-off to pocket their profits while leaving every other holder in the ruins.
The ease of creating and manipulating thinly traded assets makes these schemes appealing to fraudsters. While regulations exist, enforcing them can be difficult. Centra Tech, Bitconnect, and PlexCoin are examples of cryptocurrency platforms that promised high returns but turned out to be fraudulent scams.
Pump and dump schemes are easily identifiable by:
- Sudden and unexplained price spikes
- Promises of extravagant profits
- Lack of substantial value behind the project
Staying Safe in Crypto
The cryptocurrency world is exciting but unpredictable. You can make or lose fortunes quickly. Here’s how to avoid pump-and-dumps and steer clear of treacherous investments:
- Research before investing. Don’t rush into unknown cryptocurrencies. Read the white paper of each token to evaluate its goals and long-term potential.
- Do Your Own Research. Don’t rely solely on third-party information, especially from unknown sources. Be cautious of unsolicited investment advice.
- Follow trusted financial influencers. Verify their credibility and check for official project websites and social media platforms. Ensure they have no history of promoting scams.
- Look for listings on reputable exchanges. Scams are less likely to meet their listing criteria, increasing the project’s legitimacy.
Overall, stay vigilant and informed. Don’t let ignorance or greed lead to financial ruin. By following these tips, you can make informed investment decisions and avoid pump-and-dump schemes.
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