Crypto Glossary

Pump And Dump

A pump and dump is a scheme designed to pump the price of a coin way up, build up a lot of hype and buzz which attracts other investors in… then turn around and sell at a big profit, which then triggers a massive sell-off.

The overall process looks like this:

  1. The orchestrators buy up a big chunk of some coin they want to profit on. Many times, they will choose coins that are very cheap, thereby allowing them to purchase a LOT of coin, making the coming increase multiply their profits.
  2. Begin spreading false, misleading or exaggerated claims about some coin and how awesome it is and how much the price is sure to increase. Many times, they will claim to have insider information they don’t actually have.
  3. Continue to push that narrative on social media, thereby making it go viral.
  4. Other investors get suckered into it, causing them to buy a bunch of that same coin in the hopes of chasing the hype and making a ton of money. This drives the price way up.
  5. Once the price reaches a satisfactory level to the organizers of the pump-and-dump, they sell all their own coin.
  6. This triggers a massive sell-off as owners of that coin try to quickly get out and lock in profits… or simply keep from losing a ton of money.

These schemes are almost always done targeting small, low-cap coins. Coins that are very cheap. They are chosen because they can acquire a LOT of it, and it doesn’t take very much for new buyers to push the coin price way up.

This chart shows a pump-and-dump on Dogecoin:

You can see the MASSIVE spike in coin price, then a massive sell-off. During this pump-and-dump, you saw a LOT of social media activity with buzz about Dogecoin. People got caught up in the hype and kept buying Dogecoin thinking they were going to get rich. Then, people dump it and cash out for massive profits – causing a massive dump in the price. This particular screenshot was taken while the hype is still going around about DogeCoin, so the coin hasn’t fully dumped back to it’s original price range. It may take awhile, since there are now a lot of bah holders of Dogecoin who refuse to give up and keep pushing and trying to pump it again.

Pump-and-dumps are, unfortunately, rather common in crypto. My recommendation would be to avoid them. Chasing the hype can work out for some, but a lot of people get screwed in these things. It is always best to buy coins you think have strong fundamentals and use case.

 

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