Caution, Pump and Dump

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How to protect your cryptocurrency from fraud

The Pump and Dump scheme appeared much earlier than the cryptocurrency was invented. However, inexperienced traders who decide to try their hand at the cryptocurrency market continue to lose money on it, yielding to manipulation.

To get started, let’s look at how Pump and Dump works in cryptocurrency trading. Groups of traders gather on channels of popular instant messengers and open spaces of social networks (for example, Telegram, BitcoinTalk and Reddit). And they agree at the same time to buy altcoins at a certain price, so that they can also be sold in large quantities when the price reaches a peak.

Organizers, as a rule, disseminate false information, convincing potential investors to invest in a growing cryptocurrency. However, it is worthwhile to give them their due: they do not cover their dark affairs with beautiful words.

This, of course, is commendable transparency in comparison with hidden frauds – to recall at least the 2008 scandal that erupted around trading speculations at the LIBOR rate. However, the essence of the matter does not change for the better: the prevalence of such groups is a real threat to investors in altcoins. Oleg Seydak, general manager of the online platform for issuing loans to Blackmoon Financial Group, says:

“Such fraud undermines the entire cryptocurrency market, escalating fear, uncertainty and doubts throughout the community. A huge number of novice investors, alas, are defenseless in the face of such a danger. If we want the industry to flourish, we must fight together to clear the crypto world from scammers. ”

How to deal with it

The main thing is not to be silent.

The American Commodity Futures Trading Commission (CFTC), which specializes in the regulation of financial derivatives, has announced that it will pay good money to informants to help hold fraudsters accountable.

But until the general rules for an effective fight against Pump and Dump have been devised, investors need to be alert and not give in to the promises of the Golden Mountains. The weapon of scammers is psychology.

Experienced manipulators, as a rule, possess the gift of persuasion and easily rub themselves into the trust of beginners. Do not forget: if something looks too tempting, then this is most likely a trap.

Caution scammers

Here is an example of one of the active groups operating under the Pump and Dump scheme. Pay attention to how zealously the participants are convinced in no case not to miss an excellent opportunity when the coin is “gaining momentum”, but is still “worth a penny”.

Particular caution should be exercised in relation to tokens issued at the ICO – statistics show that in every tenth case everything will go exactly according to the Pump and Dump scenario. Back in January, Sergey Khorolsky wrote on his blog that failed ICO projects start pumping and dumping, in order to finally get hold of investors.

The strategy is simple: they spread false enthusiasm over the upcoming campaign on all social networks in order to gather as many interested people as possible. Like penny stocks, cryptocurrencies are generally very susceptible to manipulation, because, unlike stable assets, they are not quoted by large financial institutions.

 “Only one investor can greatly affect the value of cryptocurrency, and in any direction. To do this, you need to put a large sum in favor of or against any currency or offer a high bid or ask price that will automatically distort the market picture, ”says Trace Schmelz, a partner at Barnes & Thornburg LLP at the Chicago and Washington office.

In addition, the rise in cryptocurrency in the price of one of the exchanges can lead to its global increase in other trading platforms. Investors should be wary of such manipulations. And they should be wary of trading on smaller and less stable crypto exchanges, adds Schmelz.

Be that as it may, cryptocurrency is already becoming an integral part of the market. With its development and improvement of regulatory measures, fraudsters will gradually disappear. However, you still need to live to this happy end and not stay aground.

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