A crypto pump and dump, or a “rug pull,” is a scam in which a fraudster uses misleading information to inflate the price of a (new) cryptocurrency.
As a result, many unsuspecting victims will buy the currency, causing the price to rise drastically. This is the “pump phase.”
After this, the “dump phase” follows, during which the scammers sell off all their crypto and disappear with the victim’s money.
There are a few signs that can help you recognize a pump and dump scheme, such as:
- A new and unknown cryptocurrency starts receiving a lot of attention on social media.
- Celebrities or influencers getting behind a new cryptocurrency, often using similar scripts.
- Charts show a sudden price hike in a new crypto project.
- Little to no documentation available about the project, despite all the hype.
To learn more about crypto pump and dump schemes and how to protect yourself, check out the full article down below.
It has been a hot issue lately in the world of crypto and finance: crypto pump and dump schemes. Many examples can be found on social media, but they often disappear just as fast.
The scammer will use misleading information to get people interested in the new crypto and buy lots of it. Then, they’ll sell their coins and disappear as soon as they’ve got their victims’ money.
That’s why we wrote this article which explains exactly what crypto pump and dump scams are, how they work, how to recognize and prevent them, and what to do if you are scammed.
What are Pump and Dump Crypto Scams?
Although the role of crypto and social media in these scams is relatively new, the fraud itself isn’t. People have been doing this for many years with all sorts of investment options, mainly stocks.
The theory behind this scam is simple: mislead others into thinking an investment has great potential with false information. After this, the scammer waits until the stock’s price is sky-high.
Then they sell however much they have purchased of this stock or security. Finally, they disappear with their victims’ money. In recent years, this has happened more and more with cryptocurrencies.
This is often an easy and “safe” way for criminals to make a living since cryptocurrencies are largely unregulated. Also, they can be bought and sold more or less anonymously.
One of the prime examples of this was what happened last year with the $SQUID Game coin, named after Squid Game, which is one of the best Netflix shows out there. However, the coin, in reality had nothing to do with the show, but that didn’t stop it from creating a buzz.
It soared from just over a cent to $2,800 in a short period. After reaching this high point, it fell back to only a few cents a few minutes later. We want to protect you and other passionate crypto investors from these scams.
Crypto pump and dump scheme or rug pull?
Another common term for these scams is “rug pull.” Rug pulls and pumps and dumps refer to the same thing. The former comes from the idea of figuratively pulling a rug from under the investors, causing their investment to crash.
After all, this is essentially what happens with this scam. The investors feel they’re getting in on a good investment, but soon the whole thing crashes, and their investment crumbles.
How Do Crypto Pump and Dump Schemes Begin?
Although not always the case, a cryptocurrency pump and dump scam often starts on social media, such as Facebook, Twitter, or Instagram. Discord channels are also popular starting points for these scams.
After all, these scams rely on generating lots of curiosity and hype around the new coin. There is no better way to do so than with a convincing social media post or message.
Scammers will generally promise enormous growth in a short timeframe and will often lie about what the crypto aims to do and who or what is associated with the coin, like the $SQUID Game coin.
The bad actors might also get influencers or others with a significant social media presence on board. They might pay these figures to say something positive about the crypto. This will create a lot of hype, or at the very least, interest.
For many, the above will be enough to trigger some serious FOMO (fear of missing out). They’ll then buy some (or a lot) of the coins advertised, causing the price to soar and setting the scam into motion.
How to Recognize and Avoid a Crypto Pump and Dump Scheme
In this section, we will discuss how to recognize these cryptocurrency scams. After all, with these types of scams, awareness is the key to prevention.
That is because this is a type of social engineering scam. These scams rely on manipulating their victims to take action, which eventually ends with them being scammed. Here’s how to recognize crypto pump and dump scams.
New cryptocurrencies being ‘hyped up’
You should always be wary if you see a new coin suddenly getting a lot of attention. Always make sure to check out when the cryptocurrency was actually founded and go through the whitepaper to understand what it’s about and the problems it may solve.
We understand people want to be among the first ones to “discover” a new crypto coin to reap maximum rewards by getting in on the ground floor. But, in many cases, this can go against you.
If you do decide to get in on a new cryptocurrency, you should do so after doing your research and after evaluating its potential, not because some people on Facebook say it’s going to be great.
Celebrities or influencers incessantly advertising a cryptocurrency
Anytime you hear someone famous talk about a cryptocurrency, ask yourself what their motives could be. Many influencers or celebrities don’t know much about crypto, they’ll just hype something up if they’re getting paid for it.
It’s unlikely that the celebrity or influential person themselves is backing the project. What is more common is that these famous figures are paid, either in fiat currency or in the new crypto for any post that they make or the hype they generate.
In most parts of the world, there aren’t any firm laws in place yet for dealing with these scams, which is why most influencers and celebrities can get away with it easily.
In other words, always be skeptical when influencers and celebrities advertise unknown crypto projects. They might not even know they’re part of a scam, which is another reason why it’s difficult to punish them.
After all, a hefty reward for an Instagram fitness model, for instance, to just say a few nice things about a cryptocurrency probably sounds like a great gig for them and might not necessarily sound like something illegal.
Copy-and-pasted messages on social media and in Discord groups
Another tell-tale sign of crypto dump and pump scams is if you see a lot of the same (virtually) identical messages about new crypto appearing all over social media or in Discord groups, on pages, or in channels that cater to crypto or investment enthusiasts.
After all, this points to a deliberate and large-scale attempt at influencing investors’ behavior. As mentioned, this is the first step of these scams. Most of these are generally paid posts, and you may even see ads popping up on social media or video sites.
If someone wants to share something about a new coin or stock they discovered, it’s much more likely they’ll do this in one or a few groups and in a much more natural way.
Most established crypto projects quickly gain traction because of the technology behind them, and that’s what the founders often focus on. You won’t see badly-worded ads or similar messages for such projects.
Aggressive advertising campaigns
Pump and dump scammers don’t just use social media posts to entice victims. You might also see aggressive ad campaigns. This is a huge red flag when a new cryptocurrency has just taken off and has hardly any market cap.
Generally, a company developing a legitimate new product will first invest heavily in product development. They won’t spend all their resources on advertising, because they are mostly funded by venture capitalists. Bootstrapped companies are even more careful with their spending.
Therefore, it’s reasonable to be skeptical when you see an unknown cryptocurrency advertising all over YouTube, Google, Facebook, and other platforms all of a sudden.
Remember, investing in anything that’s purely based on (sudden) popularity and speculation is a dangerous endeavor. These assets have a great chance of being a scam or of failure in general.
A sudden price hike in a relatively unknown coin
This symptom usually appears when the “pump phase” of the pump and dump scheme is already in progress. When large numbers of people have already fallen for the scam, you can often see a very sudden price hike on charts for that particular coin. This is definitely a red flag.
Generally, when a lot of people decide to buy the same cryptocurrency at the same time, it leads to a sudden price jump. There is a strong chance these people have become the victim of the same persuasive tweets or posts, which is a classic sign of a pump and dump scheme.
How to Protect Yourself From Pump and Dump Cryptocurrency Scams
In this section, we’ll discuss some general tips on preventing crypto pump and dump schemes and how to ensure that you invest in crypto projects with a higher upside potential.
Think about your investment strategy and stick to it
A great part of investing or trading consists of deciding on your strategy and sticking to it. This way you can ensure that you only invest in crypto projects or assets that you know about. If you’re investing in private cryptocurrencies, avoid looking for quick gains in others.
If you’re tech-savvy and have a higher financial tolerance, you might consider investing in altcoins. However, this requires extensive research, and finding detailed information on altcoins isn’t always easy.
Conversely, if you prefer to avoid risks as much as possible, avoid altcoins, and only invest in established cryptocurrencies, like Ethereum or Monero. This way you’ll most likely avoid crypto pump and dump scams altogether.
Invest small amounts (at first)
This tip applies to new investments in general. It’s often tempting to put all your funds into a single asset that promises great returns. However, from a risk management standpoint, it’s a very bad strategy.
If you come across a new coin, try it out first by investing a small amount and see how it goes. You can always invest more once you have more information confirming it’s a profitable and healthy asset. The most important thing is to not jump the gun and make a significant investment right away.
Furthermore, most investment experts agree that a healthy investment portfolio doesn’t consist of only crypto, much less one altcoin.
Many agree you should put the majority of your funds into relatively safe investments that aren’t too volatile, and then use a smaller proportion to try out riskier assets.
This is sound advice and can also protect you from investing too much money into pump and dump schemes. Avoid making emotional investments, and always review the available documentation before making an investment.
Decide if crypto/altcoins are for you
Some people are very skeptical of crypto, even well-established currencies such as Bitcoin and Ethereum. The more extreme forms of skepticism might not be warranted, but it’s important to remember cryptocurrencies are still a relatively new phenomenon.
They are also much more volatile because their value is based heavily on speculation and remarks from famous people.
For instance, both Bitcoin and Dogecoin surged drastically after announcements and comments from Elon Musk in 2021. In the case of Dogecoin, the price increase was actually around 500%, at least in part due to Musk’s comments.
This actually caused many to accuse him of a Bitcoin pump and dump, or at the very least market manipulation (which he denied).
We’re not saying that Musk did anything wrong (we’ll leave it up to experts to comment on this), but this does illustrate cryptocurrencies can be very volatile, which greatly contributes to their potential as a means for scammers.
Only invest money you can afford to lose
It’s a cliche at this point and one many probably don’t like hearing. However, it’s true: don’t invest money you’re not prepared to lose. The riskier and more volatile the investment, the truer this saying becomes.
After all, the idea is that you only invest money in risky and volatile assets, such as crypto, which you can afford to lose.
The majority of your investments will be in bonds or low-risk funds or something similar, which are both safer from relatively safe from fraud or volatility.
What to Do If You’re a Pump and Dump Victim?
Being a pump-and-dump victim is horrible for obvious reasons. One of these reasons is that you have very little (legal) recourse. After all, cryptocurrencies aren’t regulated the way the stock market is.
The same goes for registering as a trader or investor. Most investing platforms, because of national and international laws and regulations, can only allow you on their platform after verifying your identity (usually with a picture of your passport or driving license).
There are KYC requirements that companies must meet before they allow people to start trading. However, in the world of crypto, that’s not really a big deal. The world of crypto simply doesn’t have the laws, nor the practical means in place to have this accountability. This means your options after getting scammed like this, are unfortunately slim. Nevertheless, there are still some things you can do:
Sell your position if there is still time
Remember, this is not an S&P 500 ETF we’re talking about. If you made the plunge and invested in an unknown crypto project and it takes a hit, or you’ve got a bad feeling, get out while you can.
It’s obviously difficult to know if a project’s a pump and dump scheme in the making. If you’re lucky enough to become suspicious before the big dump phase begins, liquidate your holding immediately. Many people harbor this hope that the currency may rise after a dip, but if you can save even a little bit, do it.
Report the pump and dump
If you’ve processed the initial shock of being scammed, it’s a good idea to warn others. You can do so on social media, for instance. Start by posting on social media and spreading the word around in Discord groups.
However, you should also consider reporting crypto scams to the exchange from where you bought the coin, as well as the following:
- The Federal Trade Commission (FTC)
- The Commodity Futures Trading Commission (CFTC)
- The Internet Crime Complaint Center
Invest Your Money Wisely in Crypto
You’ll come across many crypto projects that may seem too good to be true, and in most cases, they generally are. You need to avoid those as much as possible. Instead, only invest your money after you carefully evaluate a project.
Avoid listening to people when they tell you to buy something, especially if it’s too good to be true. Because, in most cases, it really is. As long as you follow these tips, your chances of losing money in a pump and dump scheme are relatively low.
Do you have any queries about crypto pump and dump schemes? We’ve tried to answer some frequently asked questions below. If we haven’t answered yours, simply leave a comment and we’ll get back to you!
“Pump and dump” refers to a financial scam in which the price of an investment is manipulated with misleading information or remarks. The price will rise first because of false positive remarks, causing many to buy the asset.
When the price is high, the scammers sell off all their asset shares. They’ll make a lot of money and leave the other investors with nothing. Recently, we’ve seen a lot of cryptocurrency pump and dump schemes as well.
There are a few telltale signs that a crypto project could be just another pump and dump scam, such as these:
- The chart for that new and unknown crypto project shows a very sudden and large price surge.
- Suddenly you see (identical) messages all over social media about new crypto and aggressive advertisement campaigns.
- Out of nowhere influencers (who are not knowledgeable on crypto) start promoting a certain cryptocurrency.
Apart from recognizing the signs, we also recommend reading up on general investing strategies to avoid pump and dump scams.
You can definitely pump and dump crypto. In fact, this has been happening quite a lot lately. The field of crypto is still largely unregulated, causing it to be more vulnerable to scams and fraud. That’s why it’s important you recognize the signs of pump and dump scams and know how to keep yourself safe.
