How Pump & Dump Works in the Cryptocurrency Market
The Pump & Dump strategy is an artificial inflation of the course of a cryptocurrency. The organizers and participants of Pump & Dump expect the price to rise, and then sell this asset at a higher price.
The fact is that the goal of any trader is to buy an asset cheaper and sell it more expensive. But what if the price of an asset does not rise in any way? It is necessary to artificially create hype around this asset, to interest other traders in it, so that they start buying. Then the price of the asset will grow and it will be possible to sell it at a higher price.
But as you yourself understand, the massive sale of an asset with an artificially raised price and useless to anyone leads to the fact that the price of the asset also begins to plummet. Therefore, only the creators, as well as the first traders who entered at the very start of Pump and were able to exit on time before the start of Dump, won the Pump & Dump tactics.
Since Pump & Dump is actually money from the air, on all classical exchanges this tactic is prohibited and severely punished. Although the Pump & Dump technology itself came from the classic stock market. However, now it is practically impossible to use it on the stock market due to strict control and strict regulation.
But on the cryptocurrency market, everything is still allowed, there are no strict laws and restrictions. There are about 250 stock exchanges and more than 13,000 cryptocurrency exchanges in the world. Therefore, the state, even if the cryptocurrency exchange is regulated, is not able to keep track of all exchanges in the country. In addition, many exchanges choose those jurisdictions where cryptocurrencies are not regulated at all or do not choose any jurisdiction.
Recently, decentralized exchanges that have no jurisdictions have become popular. And although they do not have much liquidity and a huge number of traders, the trend is obvious and many traders are gradually switching to decentralized exchanges.
At its core, the Pump & Dump strategy is close to playing hype games. Only the first traders who won in time or learned about the “pumping” of a certain cryptocurrency and managed to sell all the coins bought on time win at Pump & Dump. The income of these traders is paid due to the loss of the bulk of traders.
After all, it is not for nothing that using the Pump & Dump strategy in a professional environment is called – “cutting hamsters”. In this case, hamsters are simple traders who, at the peak of popularity, bought an asset they did not need and did not have time to sell it.
The same thing happens in hypes. Only the first investors who win in time to leave the project, grabbing the collected profit, win. The rest of the investors, who were greedy and left a contribution in the hype, are hamsters who are sheared.
How is earnings on cryptocurrency pumping arranged
Let’s consider in detail how the earnings on cryptocurrency pumping are arranged.
The pamp organizer selects the asset that he wants to “promote”.
This asset must have the following characteristics
- Have a low capitalization and be little known. A highly capitalized and popular asset is very difficult to pump. It takes a lot of money.
- Have advanced technology. It’s necessary to somehow untwist it.
- Be abandoned by their creators. Developers can see the pump in time and counteract it. After all, the largest assets are often concentrated precisely with developers, so it’s easier to accumulate a cryptocurrency that no one needs, even its creators.
- Waiting for news. Waiting for news to get a coin is much easier. If there is no news, you can create them. Indeed, in the field of cryptocurrencies there are so many fake news.
Having chosen an asset, the organizer gradually begins to buy it up very slowly. Any major purchase of a little-known asset can attract the attention of other traders and they will also actively buy it, the price will rise. At the stage of preparation for the pump, the organizer does not need a stir around the selected coin. The price for it should be minimal. After the pamp organizer bought up the necessary cryptocurrency reserves, he begins to “promote” the purchased asset. To this end, special chats for Pump & Dump users are created in telegrams and other instant messengers, chats, forums, social networks, where traders are informed which asset is pumped in and when they need to be purchased.
But the fact is that all such messages about the pump in chats, groups and even on the exchanges themselves only occur when the organizers have already been purchased. Some exchanges oppose the Pump & Dump strategy, while others are neutral. On some exchanges, even in chats, “experts” appear who report “suspicious” activity around an asset.
As you understand, this activity is falsely created by the organizers of Pump & Dump. They create large purchase orders, which are then canceled, since they themselves have already been purchased. But these orders provoke other traders to create their same orders, but do not cancel them, but execute them. As a result, traders see the hype around the cryptocurrency and begin to actively buy it. While traders buy the asset, Pump & Dump organizers are selling it slowly. After all, the price of an asset has already increased. The organizers of Pump & Dump just need to buy a coin cheaper, sell more expensive.
For greater credibility, the organizers of Pump & Dump can order articles with ‘news’ in the press, promote the asset in the forums.
As soon as the Pump & Dump organizers sell all their coins, they forget about the asset. They do not need him.
Ordinary traders who understand what they are participating in immediately start selling this asset. The price of it decreases sharply. Then beginners – hamsters begin to sell cryptocurrency in order to at least return something.
Can I Make Money With Pump & Dump
Pump & Dump is a bit like a hype. Earn only the first participants. The main thing is to be in time on time and even more important to be on time to sell all your assets.
And if a good hype can exist from a month to six months and many investors have real chances to earn money, then the pump in its active stage exists for several days, or maybe even less, and then a dump occurs, that is, a sharp drop in price.
We must also remember the technical features of the exchange. When the pump comes in, a rush begins around the asset, queues form, the execution of applications freezes. You may just not have time to enter the pump.
When the dump begins, the situation arises even more complicated and worse. Experienced traders know what they are doing and immediately dump their assets. As a result, the queue is even larger. Exchanges do not cope. Then the panic begins, the applications are canceled and in order to sell at least something, applications with a much lower price are placed. Even beginners pay attention to this. This is where the real panic begins and the already uncontrolled fall. Most traders just do not have time to do anything.
Nevertheless, you can really earn money on pumps. But for this you need not to listen to the “advice” of the manipulators and organizers of the pumps, but to independently track assets on large exchanges, famous for the fact that Pump & Dump is actively used on them. And if you see that someone purposefully buys a little-known asset, around which there is no news, or any active dynamics, then you need to look at this asset. But in this case, experience is needed. Otherwise, you can buy all cryptocurrencies in a row. There are special programs that track such suspicious activity around little-known assets.
But the program can only show the fact of activity. What is it connected with is able to determine only a trader. To do this, you need to track all the latest news of a cryptocurrency of interest and study its current infrastructure. What can be done about a little-known and little-known asset is sometimes very difficult.
How to become an organizer of cryptocurrency pumping
As you know, in the cryptocurrency pump, it is mainly organizers who pull the strings and control the whole process.
But to become an organizer of cryptocurrency pumping, you need to have money and experience. The organizer of Pump & Dump can be one person with great experience and financial resources, but often for this a group of people is created, since the costs in this case are shared between different people. Usually in the process of work, cohesive groups are formed and thus experience and knowledge are gained.
The pamp organizer is somewhat similar to the hype organizer. This is a person who must attract people either to the project (in the case of hype), or buy a little-known little-known asset.
For this, various means of advertising are used: forums, telegram groups, social networks, news sources. Just like in the case of hype, the more advertising, the steeper the pump and the more profit the organizers can get.
Therefore, it is very difficult for one person to work, a group is needed.
Often the exchange itself is used to “promote”. In the exchange’s chat, the “expert”, as it were, accidentally draws attention to the increased interest in a certain asset. Then a group of supporters supports this topic. To do this, special accounts of the “support group” are created on the exchanges, which in reality can be one person.
The same situation happens with forums. The same artificial hype and a false support group that attracts the attention of ordinary users. The supplement uses Facebook, Twitter, articles on the Medium and in the Voice. In this case, all means of promotion are good.
How not to lose cryptocurrencies on the pump and dump
First of all, you need to remember that units earn on the Pump & Dump strategy, most participants lose money. You can’t make money in the air, some earn money from the loss of others.
You also need to consider the realities of cryptocurrency exchanges. Platforms often slow down. Physically, traders do not have time to get into the pump on time due to queues on exchanges and delays in the execution of orders, and when a dump occurs, it is generally very difficult to get rid of an asset. There is already a panic.
Therefore, it is necessary to enter the pump at the very beginning, when there is still no mass hype, and sell the asset, when the hype has begun. Do not delay with this process.
The second option is to treat pumps quite selectively. Enter only the most powerful pumps with powerful promotion and advertising. Here is the situation, as with strong hypes. But a good powerful hype can live for a month or even six months, but a good powerful pump lasts two or three days, then a dump occurs. And for these two days you need to be able to buy and sell an asset.
There can be only one piece of advice – not to chase super profits, to be able to stop in time and sell your asset. And this is achieved only by experience.
Carefully study the features of the exchange with which you work. How quickly orders are executed on it. Theory is one thing, practice and reality are different. After all, the execution of an order can be delayed for hours, and minutes decide everything in a pump.
Before taking part in the pumps, you need to understand the work of the exchange well and train better on the main cryptocurrencies with high capitalization, and then move on to little-known assets and monitor how orders are executed on them.