Crypto pump-and-dumps occur when individuals (conspirators) inflate the value of a cryptocurrency so that they can sell it and profit from the sale.
It’s also explained as a coin’s inventors, collaborators, or a group of traders circulating deceptive information to raise the price of an asset before selling the shares for a greater price.
It typically occurs when prospective crypto buyers are not given adequate information.
For instance, the value of Squid game cryptocurrency increased. The coin’s value was inflated by the Squid game’s creators. After that, they vanished with $3 million in investor funds in their pockets.
Kim Kardashian and Floyd Mayweather Jr. is another instance. The price of EthereumMax was inflated. Executives from the company took the profits as a result of their actions, leaving investors with useless cryptocurrency.
In January, investors filed a class-action lawsuit, accusing Kardashian and Mayweather of being complicit in the fraud.
How exactly does this scam use cryptocurrencies
It functions quite similarly to how stocks operate. People will pump up a specific cryptocurrency asset to raise its value.
What’s used for the pump-and-dump is different. Cryptocurrencies like bitcoin, ether, and dogecoin are well-established, and it takes someone with Musk’s support to change their value. Those that are proficient in coding can make their own crypto tokens, which are digital assets using an existing blockchain technology like Bitcoin or Ethereum, as developing a whole blockchain system for a currency requires a lot of time and work.
These tokens, also known as coins, are simple to produce, much like Shiba Inu, which the project’s creators have jokingly dubbed a “dogecoin killer.” These coins may be produced in the billions by developers, which means that they only cost a fraction of a penny. For instance, one Shiba Inu token costs $0.000047, making 20,000 tokens available for less than $1.
All that is required is to persuade enough people to purchase these absurdly inexpensive coins, as it is simple for someone to cheaply produce billions of tokens at a very little cost. This can be accomplished through social media, forums, Discord channels, or by paying influencers to publicize the coin in exchange for their own stash of coins.
The fraudsters’ 1 billion tokens, valued at $0.000001, are only worth $1,000. However, if they can raise a token’s value by only one decimal place, their collection of coins is suddenly worth $10,000. They’ll wreck its value if they dump it rapidly.
The word is another minor distinction from the cryptocurrency pump-and-dump. Although it is referred regarded as a pump-and-dump, the scam is known as a “rug pull” in the cryptocurrency community since the investors’ money was literally taken out from under them. These incredibly cheap tokens are advertised as being “rug-proof,” which refers to safeguards in place to prohibit holders of a large number of coins from selling them within a set time limit.
How Can I Prevent Crypto Scams
In an unregulated market, it is simple to be duped. To counter it, we offer you information that Adam Levy wrote.
-If you see a relatively unknown cryptocurrency being advocated by internet strangers, don’t rush to jump in. Discover the white paper for the token, look it up, and read it.
You should do this for any cryptocurrency to evaluate if there’s long-term potential for it to increase in value.
-If the project has no clear aim, it purports benefits that seem impossible, its development roadmap isn’t well thought out, or it’s affiliated with previous bad actors, those are all red signals, too.
Another major red signal is if overnight, the individuals you follow start talking about cryptocurrencies.
The majority of exchanges will display both the order history and all open orders for an asset. Examine the trading volume pattern.
If it recently increased and the volume appears to be rising, be cautious.