Crypto pumps and dumps are commonplace with unscrupulous elements to profit from crypto enthusiasts. Usually, it involves a project's team spending a lot on marketing, which involves getting social media influencers, celebrities, and leaders in the space to tout their platform, calling it the next big thing. Then, wherever you turn, you see adverts of people and brands hyping the project.
Sometimes, it may involve other crypto enthusiasts who get paid to talk about it on regular chats, telling people to buy the coin and sell it once it gets to an all-time high. With the hype surrounding the project, unwitting investors buy the tokens in droves, which increases the demand for it, and increases the value on the charts.
Once the coin prices peak, the team members sell theirs first and then stop spending money hyping them. Before you know it, the cryptocurrency/coin price plummets drastically, and what the investors hold now is a worthless coin – a common occurrence in the crypto space.
Some ways to avoid falling victim to a crypto pump and dump scheme:
Some social media influencers are known to hype projects that pay, not minding if they promote a scam. Therefore, it is vital to verify if the source of information is genuine. Please do not take the words of anyone, be it a celebrity or not, without doing due diligence.
Decentralized exchanges are usually permissionless, meaning that anyone can list any coin without the exchange doing any due diligence.
Every astute crypto investor researches the project and considers tokenomics, team information, whitepaper, and much more. Hence, while carrying out due diligence, being skeptical is good.