Pump and dump schemes are illegal on regulated crypto exchanges. However, the unregulated crypto field has provided a rich ground for the schemes because users are sure they will not be easily caught
Though digital coins and blockchain technology are relatively new, they are still prone to the same old types of scams that have been around for years. One of these scams is the pump and dump schemes.
Pump and dump schemes are illegal on regulated crypto exchanges. However, the unregulated crypto field has provided a rich ground for the schemes because users are sure they will not be easily caught by authorities.
Cryptocurrency pump and dump schemes represent a situation where an individual or group of persons plans to make a profit by pumping an asset into the market. The term “pumping” is used to indicate the purchasing of large quantities of coins to push the demand and price of respective coin up.
Then, they release the assets at a higher price to rake in a high return on investment. The scammers take advantage of the market dynamics of supply and demand to make investors see the price movements as a normal trend.
In many cases, scammers target new and unpopular coins that do not require a lot of money to manipulate. For example, scammers would rarely think of Bitcoin pump and dump to provoke a Bullish run because it would require a lot of money.
To rake in more from pump and dump schemes, scammers also target initial coin offerings (ICOs) because many investors are psychologically prepared to make a purchase. The ICO is preceded by intensive lobbying that target to showcase the pumped asset in good light.
