How to recognize pump and dump in crypto

Pump and dump are definitely fraudulent tactics in the crypto ecosystem that require your attention. Essentially, it is an organized scam where small groups of actors aim for one goal: to artificially inflate the price of a digital asset ( whether it’s an altcoin, token, or NFT), and then suddenly get rid of their positions at the highest price, leaving the rest of the investors holding the hot potato.

How the scam mechanism works

It all starts subtly. Insiders – often early buyers or project developers – accumulate large amounts of the asset at the beginning. Then they launch an active promotional campaign: spreading content on social media, spreading rumors about incredible project prospects, promising partnerships and mining that don’t exist.

The result? Flooding the market with new investors who see the wild price increase and want to jump on it. Demand surges, the price skyrockets, hype reaches its peak. And then – instantly! – the organizers of the pump start the dump: massively selling their positions.

What happens next

When big players exit their positions, the price crashes catastrophically. Those who bought at the peak end up at a loss, as they can no longer sell before the fall. The market is literally overwhelmed with offered assets, the price collapses, and the project often never recovers.

Why you shouldn’t do this

Of course, the promise of quick profit is tempting. But remember: pump and dump are not just unethical, they are outright illegal in most jurisdictions. Moreover, such schemes undermine trust in the entire crypto space, make it less attractive to serious investors, and hinder technological development.

How to protect yourself

Conduct your own research before any investment. Check the project’s white paper, analyze the team through real profiles and experience, look at development activity on GitHub. Pay attention to sudden spikes in price charts accompanied by news on social media – this is a primary sign of a potential pump.

Pump and dump is a real threat, but awareness and critical thinking are your best defenses. Invest in projects with a solid foundation, not chase artificial and short-term profits.