I just realized that many newcomers to the crypto market still don't fully understand a quite common phenomenon called pump. In fact, what is a pump is one of the most important things you need to grasp to protect your assets.

Specifically, a pump is an action of a sudden price increase of a coin caused by a group of large investors coordinating their efforts. They start by buying a large amount of coins when the price is still very low, then create positive news and encourage new investors to join in. When the price has risen high enough, they sell everything off to make a profit. That’s when a dump occurs, with the price dropping rapidly and late buyers suffering losses.

I recall in May 2020, the Tierion (TNT) increased over 45%, from $0.05 to $0.11 within a few days. But just 10 days later, it plummeted to $0.03, even lower than the initial level. There was no significant news about the project, only positive rumors on Facebook. That’s a classic example of pump and dump.

Why does a pump happen? First, large whales with enormous capital can easily manipulate the psychology of small investors. Second, the FOMO (fear of missing out) mentality is very strong in the crypto community, causing people to rush in without thinking. Third, legal regulations are still unclear, so whales can operate relatively freely. Finally, ICO activities also create favorable conditions for these schemes.

The process of pump and dump usually occurs in three steps. The first step is accumulating when the price is low, gathering a large amount of coins. The second step, the whales start promoting, creating hype, and encouraging everyone to buy in at higher prices. The third step, they sell everything off to exit and take profits, causing the price to drop sharply.

Is there a way to recognize a pump? Yes. If you see a coin’s price surge significantly within a few hours or days without any special news, that could be a sign. If a reputable news site or tech forum suddenly talks about a small coin, be cautious. When a celebrity mentions a small-cap altcoin, you should also pay attention.

How to avoid falling into a pump and dump trap? I have some advice. First, always do thorough research on the project before investing. Learn about the development team, practical applications, and strategic partners. Second, don’t let herd mentality influence your decisions. There are many good projects out there; you don’t need to chase the crowd. Third, manage risks effectively by determining appropriate capital allocation and making detailed plans. Finally, prioritize investing in large-cap coins with high market capitalization, a trustworthy team, and a long track record.

Overall, understanding what a pump is and how it works is very important. This strategy not only poses risks to investors but also affects the stability of the entire market. By carefully researching, managing risks well, and avoiding emotional reactions to the crowd, you can protect your assets and participate in the crypto market more safely.