Signs Of Bitcoin Pump and Dump Scams
The rise in the popularity of cryptocurrency is unquestionable. The more they become popular, the more people want to get involved. But before you dive in, you must ensure that you are well informed first. It is obvious that if you are investing your money, you should do your due diligence. That will reduce the risk and increase your chances of making healthy returns.
Since cryptocurrency is a new industry, there are more scammers than usual trying to take advantage of people. Scammers are there in every industry but in cryptocurrency, it can be much easier for them to operate. You should remain aware of this fact and make your decisions accordingly. In this article, we are going to talk about a very common scam that you should avoid by any means.
Bitcoin is famous for many things. But it is most famous for its incredible price increase. In the last decade, it was the single best performing asset. It saw a price increase of an unbelievable 9 million percent! In 2011, its price reached $1 for the first time and in less than 3 years, it was already at $1000.
The History of Bitcoin’s Price
Right now, it seems like bitcoin is on its way to new all-time highs. This new bull market might bring even more attention to the cryptocurrency. In this period of euphoria, it is even more important to control your greed. The decisions you make now will dictate how your finances look in the future.
After a sustained bear market, its prices touched new highs of $20,000 in December 2017. It was during this period when bitcoin really became popular. The media, governments, normal folks alike were talking about it. People were yearning to learn about how to buy bitcoin and other cryptocurrency. However, the excitement didn’t last for too long. After that, it entered another long bear market phase.
Pump And Dump Scam – What Is It?
You might have heard of a pump and dump scam/scheme in the traditional market. It is an illegal activity that scammers tend to do a lot in the stock market. With cryptocurrency still being new, they have found an even easier way to do so. So, what is a pump and dump scam? Well, it is when a group of scammers comes together to manipulate the market to make money.
The way they execute it is very simple. They find a particular stock/cryptocurrency and suddenly buy huge amounts of it. This large buying greatly increases its price. This is called pumping the price. This causes other investors in the market to pay attention. After the price keeps increasing, they too start buying. It is at this point that the scammers sell all of your holdings. This is called dumping.
The result is that the scammers make a lot of money. The late investors all get stuck with worthless bags of the cryptocurrency. They lose a lot of money as a result and fall victim to the pump and dump scam.
When bitcoin’s price increased more than anybody thought possible, it raised similar concerns. Many analytics started thinking that bitcoin markets suffer from pump and dump scams too. Scammers create their own investment schemes that are directly tied to bitcoin’s performance. They reel investors in promising huge returns. In the end, they perform the pump and dump scam and run away.
Other Cryptos Are Used Too
Scammers will use any kind of way to steal other people’s money. Bitcoin is just one of these ways. Their more preferred ways are other cryptocurrency that have a very low market capitalization. The reason is quite simple. These other lesser-known cryptocurrency have really low trading volumes every day. That is important because, in such markets, any significant buying or selling can skyrocket or plummet the price.
The scammers use this natural mechanism of the market to their advantage. They buy large quantities of a low market cap cryptocurrency. This causes the price to rise significantly. At this point, investors fomo into this cryptocurrency. They too buy large quantities of this cryptocurrency from Bitcoin ATMs or cryptocurrency exchanges and the price increases further. At this point, the scammers sell all of their holdings at once and crash the market.
The late investors are left holding bags of cryptocurrency that has no use. This stuff is highly illegal and governments have strict rules regarding such activities. However, crypto being newer, the laws can be difficult to enforce.
Avoiding Bitcoin Pump and Dump Scams
You might think that it is difficult to avoid these types of scams. However, if you apply basic common sense, you will be relatively safe. All you have to do is educate yourself about this new market. That will keep you informed about what is real and what is fake. If you appear to be knowledgeable, scammers are less likely to approach you for investment.
You should also learn about how these different types of scams work. That will help you better avoid them. In the end, your investment decisions should be based on careful due diligence. That is the only way you can grow your money and not lose it.
3 Important Tips to Avoid Pump and Dump Scams
There are many ways you can avoid pump and dump scams. However, there are three basic things that you should always keep in mind. These are enough to safeguard yourself in almost all cases. The three tips are as follows:
1. Do Your Due Diligence
No matter what market you are in. You only buy something after studying all the aspects of it. You do not just blindly throw money at things. The same is applicable in bitcoin and other cryptocurrency markets as well. You have to study all aspects of a particular cryptocurrency before investing in it. This may include the technology, the team, their history and so on.
2. Avoid Pump and Dump Groups
There are many pump and dump groups online that promise huge returns to you. But these are nothing but scam groups that intend to steal your money. All you have to do is avoid such groups. Control your greed and stay away. You will be doing yourself a huge favor.
3. If It Sounds “Too Good”, It Probably Is
Some things might sound just too good to be true. Scammers use people’s greed to trap them. However, if you feel like the returns someone is promising sounds just too “out there”, you should avoid it. Chances are that it is a scam trying to con you.
We hope that this article was insightful. Be sure to also read the articles below for more information on how to avoid Bitcoin scams.
– Signs Of Bitcoin Pump and Dump Scams