Stop Crypto Pump & Dump Schemes

TL;DR

Crypto pump and dump schemes artificially inflate a coin’s price then sell quickly for profit, leaving others with losses. This guide shows you how to spot these scams, protect your investments, and report them.

How Pump & Dump Schemes Work

These schemes usually happen with smaller, less well-known cryptocurrencies (often called ‘altcoins’). Here’s the typical process:

1. Promotion: Scammers spread misleading positive information about a coin on social media, forums, and messaging apps. They create hype to attract buyers.
2. Price Increase: As more people buy, the price goes up rapidly – the ‘pump’. This is often fuelled by coordinated buying efforts.
3. Selling (the Dump): The scammers sell their holdings at a high price, making a large profit.
4. Price Crash: Once the scammers sell, the price plummets, leaving late investors with significant losses.

How to Spot Pump & Dump Schemes

Here’s what to look out for:

1. Unrealistic Promises: Be wary of coins promising guaranteed high returns or ‘the next big thing’. If it sounds too good to be true, it probably is.
2. Low Liquidity: Check the trading volume on exchanges. Low liquidity means a small amount of buying can cause large price swings, making it easier for scammers to manipulate the market. You can find this information on sites like CoinMarketCap or CoinGecko.
3. Sudden Price Spikes: A very rapid and unexplained increase in price is a red flag. Look at the coin’s historical chart – does it look natural?
4. Social Media Hype: Excessive promotion on platforms like Telegram, Discord, or Twitter, especially from unverified accounts, should raise suspicion.
5. Limited Information: A lack of clear information about the project team, technology, and use case is a warning sign. Check the coin’s website and whitepaper (if it exists).

Protecting Your Investments

Here are steps you can take to avoid falling victim:

1. Do Your Research: Thoroughly investigate any cryptocurrency before investing. Understand the technology, team, and potential risks. Don’t rely on hype or recommendations from strangers.
2. Diversify Your Portfolio: Don’t put all your eggs in one basket. Spread your investments across different cryptocurrencies to reduce risk.
3. Set Realistic Expectations: Crypto is a volatile market. Be prepared for price fluctuations and don’t invest more than you can afford to lose.
4. Use Stop-Loss Orders: A stop-loss order automatically sells your cryptocurrency if the price falls below a certain level, limiting your potential losses. Most exchanges allow you to set these up. For example, on Binance:

   // Example of setting a stop-loss order (this is conceptual - exact interface varies)
   Set Stop-Loss at 10% below current purchase price
   

5. Be Skeptical: Question everything. Don’t be afraid to ask questions and challenge claims made by promoters.

Reporting Pump & Dump Schemes

If you suspect a pump and dump scheme, report it to the relevant authorities:

• SEC (Securities and Exchange Commission): If the scheme involves securities fraud, file a tip with the SEC.
• FTC (Federal Trade Commission): Report scams and fraudulent investment opportunities to the FTC.
• Exchange: Contact the cryptocurrency exchange where the coin is traded and report the suspicious activity.
• Social Media Platforms: Report accounts promoting the scheme on social media platforms like Twitter, Telegram, or Discord.