Top 5 Signs of Crypto Pump and Dump Scams
Not everything that glitters is gold. This proverb is spot on, even in the case of crypto.
As the crypto market is still in its early stages, there are many risks and scams involved with it.
New investors fall prey to these scams, and because of this, a record $2.57 billion was lost in these scams in 2022. One of the scams is the pump-and-dump scam, in which the price of cryptocurrency is artificially inflated before the shares are sold for a profit.
So, how can we lower the chances of falling for a crypto pump and dump? Here, we will discuss the easiest 5 ways to be watchful for pump and dump red flags.
1. Heavy Promotion on Social Media
The promoters of the crypto, known as “pumpers,” frequently use influencers, celebrities, social media, and other online channels such as WhatsApp and Instagram to spread hype about the coin. This is just a marketing strategy to reach a larger audience. Even Kim Kardashian promoted EMAX tokens, but it turned out to be a pump-and-dump scam.
They also usually turn off their comment section on these platforms, which makes them more shady. So if an unknown crypto suddenly picks up hype, the probability is that it’s a scam.
2. Sudden Price Hikes
One of the biggest red flag signs to be watchful for is a sudden price hike in a token. This is especially true for tokens with very low liquidity or that are not very well known.
The increased trade volumes that accompany this price hike give the impression that the cryptocurrency is in high demand when, in fact, it is not. So, investigating is better than investing in such a scam.
3. Deficiency in Transparency
Pump-and-dump schemes for cryptocurrency are typically operated by anonymous individuals or groups, making it difficult to identify them.
These individuals use fake names, addresses, and locations to hide who they are. This allows them to manipulate the cryomarket without fear of consequences.
Such a lack of transparency is definitely a red flag for investors.
4. Unregulated Exchanges Use
Most pump-and-dump exchanges happen on platforms or exchanges that aren’t controlled and don’t have proper KYC (know your customer) and AML (anti-money laundering) rules in place.
These exchanges make it easy for the pumpers to manipulate their cryptocurrencies and sell their holdings.
So, when regulating these currencies, the best is to use regulated platforms that follow KYC and AML rules. These pump-and-dump schemes are less likely to work within these platforms.
5. Lack of Utility
The main use of crypto comes from their utility. Coins with no practical purpose or value are the usual targets of pump-and-dump tactics and currently, there are 5,000 such cryptocurrencies in the market.
One example is the Squid Game token that rose to heights in 2021.
So, don’t invest in coins with no monetary value or those you cannot sell.
Conclusion
If you wish to stay safe from losing a lot of money as an investor, you need to be very watchful of these scams. The best strategy is to do your research, use analysis to identify fake ones and stay updated with the latest news about pump-dump-scams.
If you have any questions regarding any of the above-mentioned red flags, don’t hesitate to reach out in the comment section below.