Cryptocurrency is the latest ongoing trend and has already become a huge part of the financial market in a very small period. With such a huge influence in the financial market, people try their best to find loopholes in the system for their advantage.
Traditional traders are implementing their traditional trading techniques to exploit the system. One of those techniques is crypto pumping.
What is Cryptocurrency Pumping?
Pumping, also known as the pump-and-dump scheme, is a scam, which is not new to the market and has been used by traders in traditional trading for a very long time. The pumping scam includes artificially increasing the price of a less common coin or a coin that is thinly traded, which is called a “Pump.”
In this scam, a group of crypto traders with high investing power will buy a large amount of less common coins, which causes the coin price to increase exponentially due to the active trade in the system. After the initial rise in the coin price, the buying entity starts ‘pumping’ the price even higher by exaggerating the coin on social media.
People on social media get excited, and because of the fear of missing out, they start buying the coin, which causes the price of the coin to “pump” even higher. Now that the coin price is at an all-time high, the entity behind the pumping scheme is ready to cash out its profits.
When the entity starts to cash out, this causes a massive “dump” in the coin price, and anyone who entered the market late experiences big irreversible losses. This massive dump in the price leaves the coin worthless as there is no circulation of that coin in the market anymore.
This is called a “pump-and-dump” scheme and is very risky for people other than the entity involved in the scheme. A “pump-and-dump” occurred on Binance with CND/$BTC on June 6, 2021. People noticed that 88 million coins were bought according to the volume indicator, which caused a massive spike in the coin price.
The price of the coin increased to 0.00000091 from 0.0000062. At the end of the scheme, the coin price went all the way down to 0.00000054.
How to Spot Pumping?
If you have moderate knowledge about the cryptocurrency market and trading, it is very easy to spot the “pumping” or “pump-and-dump” scheme. Some basic indicators of “pumping” are a sudden increase in market cap and volume of a less common coin, also known as shitcoin, without any apparent reason.
The rapid appearance and disappearance of the buy and sell walls on the chart are also major indicators that cryptocurrency pumping is taking place. People with major social media influence suddenly talking about a certain project with no apparent reason can also indicate cryptocurrency pumping.
Many people get tempted to buy the coin during the pump-and-dump scheme as it seems very promising, but you should be careful and perform enough research before investing. Even if you spot cryptocurrency pumping ahead of the peak, you should refrain from investing in it as it is considered unethical and cause a lot of collateral damage.