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Scam Logs: The Pump and Dump Scam

Scam Logs: The Pump and Dump Scam

Welcome back to the Scam Logs. The internet article series all about the ways people try to scam others out of their cryptocurrency. Today, we’ll be covering a scheme used in the stock market and is now in our corner of the woods.

It’s called the “Pump and Dump” scheme, and at its core is a simple manipulation of the market. It’s a trick of optics and finances and organizing scammers.

Here’s how it usually works: first, the scammers find an asset, in this case cryptocurrency, that they can target. One option is a crypto that’s not seeing much or any use. These are easier to leverage for the scam.

The next thing they do is pump up the crypto. By organizing around the scheme, they can artificially inflate the value of the crypto by buying a lot of it. This naturally makes the crypto seem more appealing.

Next up is perhaps the most devious of the steps: they promote the crypto. Since it’s now worth more, they can entice others into buying it, further increasing the money that crypto seems worth.

But then comes the dump. The people behind the scenes sell off their coins—for way more money than they got them—then they leave the whole scene. Usually, without that ill-intended support, the coin will lose its value and plunge back down. Leaving excited investors holding the bag.

So, how do you avoid this scam? Well, first off, you’ve got to be mindful of the promotions you see. Because of how this whole scam works, they target coins that were not popular before the scam. That’s not to say that cryptos don’t suddenly spike in value—just look over Bitcoin’s long history—but it will be obvious something just changed with the crypto. Concentrated buys to inflate will look like what they are.

The other thing of note is to pay close attention to the promotional efforts of the creators of the coin. The scammers don’t necessarily have to do much to get the media storm flying—after all, it will look like easy money to those they are trying to scam—but it’s likely this is the first media storm for the coin in a long time, or perhaps ever. These scams, again, work well with low-level, failed, or dying coins. If this is an out-of-the-blue explosion of coverage, be wary. If the creators have shown no progress in a while, have released no blog articles or videos, then it might be fishy.

And that’s the pump and dump scam. It’s not the most sophisticated of the scams we’ve covered, but it is equally evil. It’s a scam that preys on excited buyers, on optimistic people, and turns that against them.

And that’s why we cover stuff like this on the Scam Logs: to give you more tools, more knowledge, to help protect you from scams.

By |2021-03-19T00:34:39+00:00March 24th, 2021|DFN COLUMNIST|0 Comments

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