How to Identify and Avoid a Crypto Pump-and-Dump Pattern?

Learning about the crypto ecosystem is critical for investors to pursue during a bear market in anticipation of a bull cycle. That said, an understanding of crypto investing means keeping an eye out for fraudulent schemes that threaten to drain assets overnight i.e. pump and dump patterns.

Pump-and-dump in crypto is an orchestrated fraud where investors are tricked into buying artificially inflated tokens – usually marketed and hyped by paying celebrities and social influencers. The SafeMoon token is one of the most prominent examples of an alleged pump and dump scheme involving A-list celebrities including Nick Carter, Soulja Boy, Lil Yachty and YouTubers Jake Paul and Ben Phillips.

Once investors buy tokens at high prices, those with the largest pile of tokens are sold out, causing the price of the token to drop immediately. While scammers disguise pump and dump schemes under the guise of creating the next batch of crypto millionaires, savvy investors have the upper hand in identifying and avoiding their involvement.

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Pump-and-dump schemes usually come with false promises in three broad categories: case-solving, guaranteed exorbitant returns, and unwavering endorsement from celebrities and influencers.

The long-term success of a cryptocurrency is highly dependent on the use cases it serves. As a result, people who support pump-and-dump projects often suffice their involvement by highlighting the use cases the token aims to serve. Such programs also usually attract celebrities with cash advances and the project’s internal tokens.

Celebrities then sell the fraudulent tokens to trusted fans, usually with promises of a high return on investment. In the case of SafeMoon, the celebrities were accused of slowing down, meaning companies sold slowly as retail investor trading volume remained high.

Binance, the largest crypto exchange by trading volume, also warned investors about investment advice from celebrities and influencers.

During the next bull cycle, traditional and crypto investors around the world will redouble their efforts to recoup the losses from the ongoing bear market. With this information, scammers will try to find opportunities to trick unwary investors into presenting unrealistic profits. Therefore, doing your own research (DYOR) is one of the best crypto tips.

Related: Sygnia CEO Sues Elon Musk for Alleged Bitcoin Pump and Dump

Elon Musk was recently accused of manipulating crypto prices by prominent South African billionaire businesswoman Magda Wierzycka.

Wierzycka believes Musk’s social media activity and its implications for the price of Bitcoin (BTC) should have made him the subject of an investigation by the US Securities and Exchange Commission. She believes Musk deliberately raised the price of Bitcoin via tweets, including those reporting Tesla’s purchase of $1.5 billion in BTC and then “selling much of its exposure to the top.”

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