The Pump and Dump scheme originated long before the advent of cryptocurrencies.
Pump and Dump is a manipulation scheme that increases the rate of a cryptocurrency, followed by a price crash.
This scheme got its name due to the fact that large asset owners artificially increase, as if pumping, their value, in order to subsequently “dump” it as unnecessary, selling the asset as expensive as possible. As a result, the value of the asset falls and investors lose money.
At the time when the "Pump & Dump" scheme arose, it began to be actively used in the American market of "junk" or "penny" stocks in the late 20s - early 30s of the XX century, when there was the Great Depression. At that time, stockists sold low-value shares to each other, which led to an increase in demand and higher prices, after which the shares appeared on the public market. In the United States, this practice was declared illegal. The finest hour of Pump and Dump schemes in the stock market came in the early 2000s.
Pump and Dump can be short term and long term.
The short-term scheme lasts from a few minutes to a maximum of several hours. Used with unknown cryptocurrencies with low capitalization;
The long-term scheme lasts from several days and more, and the ups and downs of the rate have a number of stages.
Algorithm of the "Pump and Dump" scheme
Part one. The organizers, choosing the exchange and currency, buy tokens in small portions because otherwise, they provoke a premature rise in the rate. Often these are unknown cryptocurrencies that do not have a high capitalization. Although sometimes relatively large cryptocurrencies are used for "Pump and Dump".
After the purchase of the token, the "pumping" starts. Wherever it is possible to do this, the announcement of the upcoming growth of the rate is published and the name of the exchange site is announced. On this site, the organizers of this scam, through their bots, place and take away large permits for the purchase of a token, raising its rating.
After investors know about the pump in advance, they are confident in guaranteed earnings. But the investors themselves become victims, and some of them even pay to subscribe to such pump channels to follow the news, but unfortunately, they often do not win anything.
If the advertisement is successful, then the second part of the pump will begin. In this part, third-party investors appear who, independently of anyone, influence the increase in the rate. Against the background of this fever, the price rises, the organizers sell tokens at an inflated cost, after which the cryptocurrency rate returns to its original indicators.
Earnings on the "Pump and Dump" scheme
If we talk about the short-term form of the scheme, then it is unlikely to make a profit from such a pump, because profit is possible only for the organizers, since ordinary traders do not have time to react.
With a long-term pump, things go better, and theoretically it is possible to withdraw profits and a trader can rely on profits, however, in this case, he has no more than three to five minutes to publish documents. Moreover, the probability of losses is equal to the probability of profit.
Most of these transactions have one difference: after the first crash, there is a new short-term growth due to the fact that retail investors are included in the trade.
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