Pump and Dump: What is It and How Does It Work

Cryptocurrencies are assets that have a significant degree of volatility due to their decentralized nature. Because of this characteristic, the value of a coin might see a sudden and dramatic increase or decrease in value. The portability of digital assets makes it possible to use them in pump and dump schemes, sometimes known as “Pump and Dump.” These schemes involve intentionally driving up or driving down the price of an asset in order to make a profit. Let’s have a look at the process to see how it operates.

Pump and Dump: How They Work

Making money is the primary objective of each of the Pump and Dump schemes, which all have similar structures. The concepts of pump and dump, which are frequently referred to simply as pump and dump, are reflections of one another. If it is necessary to cause an increase in the price of an asset in order to make money in one scenario, then it will be necessary to cause a decline in the value of the cryptocurrency in the other scenario in order to make a profit from either scenario.

What exactly is pump?

In order to make money pumping cryptocurrencies, the cryptocurrency in question needs to demonstrate significant growth. The difference in exchange rates will represent the amount of profit. As an illustration, the price of the coin was $10 prior to the pump, but during the pump, it reached a high of $20. A user who started out with $10 in his account will see a profit of the same amount if he is successful in selling the asset for the highest possible price. The key is to recognize the optimal time to sell cryptocurrencies in order to maximize your profit.

To set up a pump, you need resources that will make market participants want to buy a coin. As an example, you can ask a well-known member of the crypto community for advice on a project. John McAfee, the founder of McAfee Associates and a candidate for the US presidency, made a name for himself by running pump schemes.

The developer often talks with people in the crypto community and makes predictions about how the prices of digital assets will change in the future. John McAfee chose Twitter as the main way to talk to his audience at the same time. At the time this was written, the developer’s microblog had about 1 million subscribers, many of whom are members of the crypto community.

When John McAfee started posting information about coins, including advice, on Twitter, many people accused him of setting up pumps. In more detail, this is how the process works:

Even though John McAfee is strange, investors like and respect him. The price of the asset has gone up every time he wrote about projects on his microblog.

When John McAfee released new recommendations, many people in the market saw it as a sign to buy assets.

The analyst was able to cause big jumps in coin growth by recommending cryptocurrencies on his microblog. So, many people turned to his Twitter to find out “how to know when the pump will be.”

Market participants use different tools, such as technical analysis indicators, to figure out how much a coin could grow during a pump. For example, signs that an asset has been sold too much.

What is dump?

The objective of the dump is to bring about a reduction in the price of the coin. Some people participate in the scam so that they can earn a profit by purchasing coins at a low cost, while others do so so that they can capitalize on the decline in value of digital assets. Traders utilize a strategy known as “short positions” to accomplish this goal. The following describes the working schedule:

A trader will make arrangements with an exchange or other trading platform to borrow a predetermined quantity of coins by entering into a loan agreement. In preparation, we also talk about the time that the transaction will take place.

The value of the cryptocurrency that the exchange issued for loans is locked in by the system at the price at which it is currently trading. Consider the exchange rate of bitcoins (BTC) for ten thousand dollars. After the completion of the trade, the trader is obligated to repay the set amount of bitcoin to the platform in exchange for the loan amount. In this particular instance, $10,000

Following the completion of the dump, the value of the coin will drop. Because of this, you will be able to purchase additional bitcoins for the sum that was mentioned earlier. The speculator paid back the loan, which was denominated in Bitcoin and amounted to $10,000. He reserves the remainder for his own use.

Two-in-One: Pump and Dump

Some manipulators are skilled at using both of these methods. In this scenario, the increase in the value of the cryptocurrency is immediately followed by a significant decline in its price.

Summing Up

If you have the necessary means, you can make a big income in a relatively short amount of time through the use of a strategy known as pump and dump. They can be used independently or in conjunction with one another by manipulators. Even if there is the potential to make money through pumping and dumping, engaging in such schemes is still fraught with significant danger. The reason for this is that it is quite challenging to forecast both the highest and lowest possible prices for coins in a given area.