Three Ways To Avoid A Pump-And-Dump Scheme In Crypto

The credit for the rapid emergence of cryptocurrency could be safely given to social media. But as they say, social media is both a boon and a curse. Well, it is also true in the case of the crypto industry. Popular social hangouts such as Twitter, TikTok, and Reddit often become the target of fraudsters, who carry out the frauds called the pump-and-dump. Though these scams exist in the entire finance sector. They are awfully common in the crypto industry. 

In pump and dump schemes, also known as “rug pulls,” the hackers vanish the investor’s money in a blink of an eye. As per research from Chainalysis, in 2021, these Ponzi schemes took around $2.8 billion worth of cryptocurrencies. It accounted for 37% of crypto scam revenue of the year. But, what exactly are these pump-and-dump schemes? And, how can we save ourselves from it? Let’s find out: 

What Is Pump-and-Dump Fraud?  

Pump-and-dump is a fraud scheme. Bad actors running these fraudulent schemes misled investors into buying falsely inflated tokens. Then, they sell these shares at higher prices. These pump-and-dump schemes pretend to have real-world use-cases or guarantee high lucrative returns. Investors often get swayed by these causes. 

How To Avoid Pump-And-Dump Frauds? 

There is no sure-short way to tell if a crypto project is a pump-and-dump fraud. However, there are some ways through which you can avoid these frauds: 

Do Your Own Research

The best way to avoid a pump-and-dump fraud in crypto is to do your own research. It can be quite tempting to go with the trend, especially if your favorite celebrity is endorsing it. Or, the project has tempting returns. No matter what, first research the project and derive its pros and cons. Only then go ahead and make the decision.

Devise Your Own Strategy 

Make your own investing strategy. Decide your risk tolerance and study the market trends. And, whenever you come across these pump and dump schemes, you are likely to avoid it. Since when you research the project and tally it with your strategy, most of the time you will realize it doesn’t fit in your strategy. 

Start Small 

Always invest small in newly launched crypto projects. Imagine a worst-case scenario, you have done proper research and had your strategy. But things, somehow, still went wrong. Then, at least your losses won’t be that big. 

Be Aware Of Celebrities And Influencers Marketing 

The simple logic is to know that celebrities do not promote a token or coin with the intention to get you rich. They have their own reasons, which could be they want the coin to pump in its value. They might really believe in it sometimes. Or they are simply getting paid as a spokesperson.Safe Moon is one such example. The token was heavily promoted by celebrities. It turned out to be a big fraud. One of the leading crypto exchanges, Binance also issued a warning to investors, recommending not to take advice from celebrities and influencers.

Nancy J. Allen is a crypto enthusiast and believes that cryptocurrencies inspire people to be their own banks and step aside from traditional monetary exchange systems. She is also intrigued by blockchain technology and its functioning.

Latest posts by Nancy J. Allen (see all)