We can use the internet for many things. For example, if you want to play games on your mobile phone, you can download the VulkanVegas app right now and choose from thousands of casino games. Moreover, in this way, you can also take advantage of Casino Vulkan Vegas bonuses. But the internet is also full of dangers, and pump and dump scams are one of them. With the spread of cryptocurrencies, it is possible to say that they have become much more common. So, what exactly is this type of scam, how does it work, and how can you protect yourself? We answer all these questions below.
What Is “Pump-and-Dump”?
This is actually a pretty old scam technique. If you’ve seen the movie The Wolf of Wall Street, you already know what it’s like. This movie is based on true events and tells the “adventures” of an investment company called “Stratton Oakmont.” This was a company founded in the early ‘90s, and to make money, it was misleadingly marketing a stock it owned to drive up the price. Imagine a hundred people talking on a hundred phones at the same time and saying, “This stock is worth gold, its price will rise very soon, hurry up and buy it now.” If a hundred people believe this scam and buy that stock, the price goes up.
If 1,000 people do the same, the price goes even higher. If you already have that stock, you suddenly become rich. But there is still a problem: Stock has no real value, and it won’t take long for other investors to realize this. So, what you need to do is clear – when the price goes up, you sell all your stocks and collect the money. From then on, you don’t care what happens to other stockholders.
This “system” is also used in cryptocurrency markets. A worthless cryptocurrency is bought in large quantities, and the value of that currency is increased by misleading tactics (pump – in the sense of pumping the price). Later, when the price reaches a certain level, those who bought that cryptocurrency in advance immediately place a sell order and get rid of the coins (dump – in the sense of getting rid of the coin). If you are a victim of this scam, you are left with hundreds of worthless coins that you bought, thinking you would get rich.
A Step-by-Step Example of a Pump-and-Dump Scam
- The scammers are buying a large amount of a cryptocurrency that has no value. In this example, let’s call this currency “ABC coin” and assume 1 coin is equal to 0.01 USD. Scammers buy 1,000,000 of this coin by spending only 10,000 USD. Remember this figure: The scam group has made an “investment” of 10,000 USD at this stage.
- The same group started to increase the value of the coin they bought by using platforms such as Facebook, Twitter, and BTC Talk. This is done in two ways:
First, a certain group starts posting on these platforms that ABC is actually a hidden “treasure,” and its value will rise in a short time. These posts all seem to come from different people.
Another group explains what the real goal is on anonymous platforms such as Discord: They say that this is a pump-and-dump operation and that those who are part of it will make a lot of money.
The purpose of both of these tactics is the same: to get the buyers needed for the pump phase. - Posts on social media platforms are causing a large number of people to create a “future buy” order for ABC coin. This means that the coin is automatically bought when its value exceeds a certain number. Other people who know what is actually going on get a specific day/time, and when that time comes, everyone is asked to start buying the coin.
- When that hour comes, thousands of people from all over the world are starting to buy ABC coins. People who place a future-buy order automatically become a part of this process. As a result, the value of the coin suddenly starts to rise.
- Scammers automatically start selling when the coin’s value reaches, for example, 0.10 USD. Since they are the first to sell, they make an incredible profit. They bought 1,000,000 units of this coin at a value of 0.01 USD and invested a total of 10,000 USD. Currently, the value of the coin is 0.10 USD: They have earned 100,000 USD. Their net profit is 90,000 USD (100,000 – 10,000).
- Seeing the price start to drop, other buyers also start selling, but even seconds count in the crypto market. It is not possible for them to make a serious profit, and most of them even make a loss. Of course, this doesn’t matter to the scammers: They didn’t share their identities after all. They close the Discord group and look for another coin to pump.
Pump and dump scams are illegal if done for stocks and have very heavy penalties, including jail time. However, since crypto markets are not government-controlled (or even regulated by any central authority), they are particularly affected by this type of scam, and there is nothing that can be done against scammers. Most states do not even consider cryptocurrencies as a currency, so there is no sanction for pump and dump scams in this market. Knowing that offers that are too good to be true are not real is enough to protect you from this type of scam. If someone promises you that you can invest 1 and win 100, they are lying – it’s that simple.
