A form of fraud involving the artificial inflation of the price of a cryptocurrency with false and misleading positive statements.
What Is a Pump and Dump (P&D) Scheme?
As cryptocurrencies have risen in prominence in recent years, so has the number of P&D schemes taking place in the crypto space.
P&D crypto schemes work when a group of co-ordinated cryptocurrency traders target a specific coin aimed at artificially driving demand for the coin.
The pump and dumpers not only choose a coin, but they also target a specific exchange.
Their aim is usually to drive up the volume of the selected coin. They normally target coins which have low volumes.
As the price of the targeted coin creeps up, many traders unrelated to the coin usually flock to it, driving up demand and price for it.
The coordinated action is usually repeated later in the opposite direction, where the organizers exit the market, normally once a specific price target has been met.
The result usually is a dramatic decline in the price of the coin, leading to huge losses for the traders who were unaware of the scheme and bought the coin based on unrealistic and false expectations.
Traders involved in P&D schemes normally coordinate the act using communication platforms such as Discord and Telegram.
According to the Wall Street Journal, P&D schemes related to cryptocurrency markets accounted for $825 million worth of trading activity between February and August 2018.
The core organizers of P&D schemes are usually the ones who stand to make the most profit at the expense of traders who bought into the false expectations.