How Bitcoin Pumps and Dumps Work

First of all pumps and dumps are illegal in the market hence you as a Bitcoin user should not expect deferral agencies to protect you. This brief overview looks into how Bitcoin pumps and dumps work and how you can make money of it but remember that is very risky.

Patterns

Bitcoin pump and dumps work in a very simple yet straightforward manner. Pump and Dump schemes comprise of two groups of people. The first group is players who play by artificially increasing the price of the Bitcoin by endorsing or promoting it. This category of individuals spends their time finding cheap coins to purchase then wait for when they are ready for dumping and build a buzz about the coins. The process of finding and buying cheap coins can take as quick as minutes or as long as hours or even days.

The people selling buzz creating momentum for the coins leading to an increase in trading volume as the value of the coins gradually increase. One interesting aspect of the process is that you are both the pump as well as the dumper. When the coins hit the price, you desire you can sell your coins. Some people tend to panic sell and end up dumping their coins for purchase returning the price of the coins to average. The most important step is to distinguish a coin that is being primed for a dump from one that is being primed for a pump. The pump and bump process creates buying patterns whereby as the price goes up and down each time a player buys thereby loading up on the cheap coins.

When players purchase coins, they tend to engage in the forums and chat boxes to share with others the coin of their choice. These players will regularly use multiple accounts and other players usually help them in making it look more real. This leads to the coin being talked up creating a buzz causing people to get interested and purchase the coins- ultimately creating the pumping process. When people start to buy in huge numbers, the price goes up fueling the buzz even further.

When the coin hits the high point player begin to sell off their coins in portions leading to the creation of a dumping phase. Te dumping phase can take second or even hours. In the initial stages of the dumping process, players sell only a small amount of coins very fast without dragging the price down until they run out. When the coin is flat, panic sells arise causing the dumping process since the price is no longer increasing yet the volume is low hence sell orders are no longer getting filled. Typically, panic sellers sell below the standard market value leading to a fall in the value of the coins.

A wise player spots a coin that is in the process of being prepped for the pump and dump then purchases cheap coins to ensure they have a significant volume enabling them to make decent profits easy and straightforward. As long as the Bitcoin is in the early stages of being pumped you have the opportunity to make money even though your risk may be higher.

You can also pay particular people to tip you off on the next coin that is about to be pumped and dumped.

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Resources

Investopedia.com

Image credits

http://www.investopedia.com/
http://weightology.net

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