Pump and dump

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Pump and dump" is a term used in the context of financial markets, especially in the context of stocks or cryptocurrencies. It refers to a fraudulent practice where individuals or groups artificially inflate the price of a particular asset, such as a stock or cryptocurrency, through misleading or false statements. Once the price has been artificially pumped up to a high level, these individuals then "dump" their holdings by selling them at the inflated price, leading to a significant price drop.

Here's how the process typically works:

Pump Phase: The perpetrators behind the scheme spread false or exaggerated information about the asset's potential for growth. This could involve making positive claims about the asset's value, performance, or future prospects, often through social media, forums, or other communication channels.

Increased Demand: As more investors hear about the positive outlook for the asset, they may start buying it in large quantities. This increased demand causes the price to rise rapidly.

Dump Phase: Once the price has been driven up to a sufficiently high level, the perpetrators sell off their holdings at the inflated price. This sudden influx of selling pressure causes the price to plummet, resulting in significant losses for those who bought in during the pump phase.

Victims' Losses: Individuals who bought the asset based on the misleading information suffer financial losses as the price crashes. The individuals behind the scheme, however, have already profited significantly from their sales during the pump phase.

It's important to note that pump and dump schemes are illegal and considered a form of market manipulation. Regulatory bodies such as the Securities and Exchange Commission (SEC) in the United States actively monitor and take action against individuals or groups engaged in such fraudulent activities. Investors are advised to exercise caution, do thorough research, and be skeptical of any investment opportunity that seems too good to be true.