Altcoin scam - how it works.

[Tomcat]

In simple terms, “pump and dump” is an investment scam where scammers buy a coin that is inexpensive in market value, advertise (pump) it, and then sell (dump, dump) as soon as its price rises. Price inflation does not reflect the underlying value of the coin, meaning the price plummets after a reset.

Finding a target​

The scheme begins with scammers choosing a viable cryptocurrency to exploit. Ideally, it is a little-known or newly launched cryptocurrency (commonly called an altcoin) with a small market capitalization that is poorly (or not at all) known to the general public. Such a coin has low liquidity - low trading volume and minuscule supply and demand - meaning that very few people buy or sell it. Having chosen a suitable candidate, the scammers purchase a large number of coins.

Increased demand​

Increased demand, fueled by scammers' purchases, does part of the job of inflating the price of the altcoin. To further inflate the price of the coin, scammers are aggressively promoting it on social media and communication platforms. The endorsement of public figures or institutions, whether real or (as may happen) faked by fraudsters, also plays an important role in the appreciation of a currency.

"Whale manipulation" is an alternative pumping strategy. Instead of simply promoting an altcoin, the investor makes a significant purchase to increase trading volume and price through his own actions. This spike serves as an additional bait for the unsuspecting trader.

Emerging FOMO​

Now scammers can only rely on the greedy nature of man. An easy profit sounds like a good deal, so when people see an obscure coin rapidly rising in value, they're more likely to want to jump on the charging bull. This process, called the fear of missing out, or FOMO, is the core principle that makes the circuit work.

Reset moment​

Once enough outside investors take the bait and the hype begins to die down, it's time for the scammers to sell what they own. The currency has reached the point where the scammers believe its selling price has reached its maximum. The scammers then sell their coins at an inflated price and make huge profits.

Consequences​

The increase in supply and the subsequent drop in demand begin to rapidly reduce the falsely inflated price. Scammers dumping a significant amount leads to a sharp drop in the price of the altcoin. Seeing the downward spiral and realizing that the currency has no intrinsic value, outside investors also want to sell it to minimize losses. But it's too late for them. Anyone who missed the "reset moment" will likely end up with worthless coins.

Avoid scams​

Pump and dump schemes are both easy and difficult to recognize. Patterns on trading charts do not differentiate between a pumped coin and a coin for which the price increase is genuine. Whether you're buying coins in an initial coin offering (ICO) or investing in obscure altcoins, you should always DYOR (do your own research) and only trade what you understand.

When investing, look out for exceptional price spikes (anything over 80% in a day or two is usually considered suspicious) and be wary of small market cap cryptocurrencies. If your personal cryptocurrency research doesn't reveal any compelling reasons for the price to skyrocket, there's a good chance it's simply because there really aren't any. You yourself know what to do in this case. We are looking further. Your investments are better placed elsewhere.

Summary​

Pump:

• A scammer or group invests in a specific cryptocurrency with a low value.
• Increased demand and additional promotion attracts external investors.
• Outside investors are flocking in for fear of missing out on easy profits.

Dump:

• As soon as the price increases, scammers sell their coins at a greatly inflated price.
• A sudden increase in supply has the opposite effect on the price of the coin.
• Third party investors are left with worthless coins.