What is pump and dump: how not to lose your money

Pump and Dump
The pump and dump scheme for making money on gullible traders appeared in the stock markets. But there they can be fined, lose their license and even go to prison for manipulating rates, so scammers moved to the cryptocurrency market. How does the pump and dump scheme work, and how to avoid becoming a victim of it?

• What is pump and dump
• How does the pump and dump scheme work?
• How to recognize cryptocurrency pumps and dumps
• Types of pumps Short-term pumps
• Long-term pumps

What is pump and dump

Pump and dump at the
Pump

- this is a planned and sharp increase in the value of a coin in order to then sell it at the highest possible price. With a dump, on the other hand, the value is deliberately reset.

As a rule, pumps and dumps are typical for little-known coins with low capitalization. The fact is that altcoins are easier to manipulate in the market, where even a small investment in a token can greatly affect its rate. Therefore, manipulators try to attract as many people as possible to the project in order to control the price.

Let’s look at a simple example of what a cryptocurrency pump and dump is:

The man decided to make money on inexperienced “hamsters” alone or even gather a whole group. These “conspirators” purchase a coin at a minimum cost, and then deliberately increase its rate, often using “black methods”. In addition to attractive speeches about simple income, misinformation is used to attract more buyers.

Okay, you believed in the prospects of the coin and bought more. You weren’t even bothered by the high price; you think that you managed to make a profitable investment, because very soon the price will skyrocket. This is exactly what the pump organizers wanted. Essentially, they sold you a token at the peak, making a few X's on your gullibility. And you not only did not increase your capital, but also stupidly lost money, because the coin began to fall sharply, that is, “dump.”

A clear example of a pump and dump.
Additional information about what a pump and dump is can be found in the video below:

What is pump and dump

How does the pump and dump scheme work?

The principle of operation of pump and dump
To understand the principle of operation of the pump and dump scheme, it is enough to translate its name into Russian. Pump means pump or pump, and Dump means dump or discharge. This is exactly how scammers work; they first pump up the rate of a little-known coin, and then collapse it.

All pumps are carried out in three stages:

1. The first stage
   is preparation, when scammers choose a little-known cryptocurrency or an ICO project token with a low price. Then they gradually buy up this asset in order to accumulate enough resources to manipulate the rate and not affect its value ahead of time.
2. The second stage
   is the pump itself, when the price soars by 30%, 50% or even 100%. To do this, through special websites, groups on social networks and messengers, a signal is given to pump participants to buy the selected cryptocurrency, citing the fact that it will soon become much more expensive. Additionally, fake positive news may be launched, for example, about the imminent completion of the development of innovative technology or a profitable partnership.
3. The third stage
   is the dump itself, at this moment the organizers of the entire scheme stop artificially stimulating price growth and, on the contrary, bring it down by placing sell orders. Those who believed in the growth of cryptocurrency and bought at the peak of value have no choice but to sell for next to nothing in order to return at least part of the money.

Registry Settings

The registry section that defines the crash dump parameters:

HKEY_LOCAL_MACHINE\SYSTEM\CurrentControlSet\Control\CrashControl

Options:

How to recognize cryptocurrency pumps and dumps

Manipulation of the price of cryptocurrencies
Let’s look at the most obvious signs of a pump and dump, which should immediately alert you so as not to invest in a “dummy”:

• Usually, before a thick green candle there is a flat - the so-called “quiet period”. The price stays in one place, neither rising nor falling. Despite the imaginary stability, this is a very dangerous period of time, since usually a flat is followed by either a sharp increase in price or its sharp decrease. Here it is important to predict in which direction the trend will move;
• Suspicious “hype” around the coin in various social networks. This is when everyone you meet, even those who don’t understand crypto, insists that you need to buy this token. For such purposes, special groups, chats and crypto channels are even created in which buy signals are given. Moreover, such pump groups can consist of up to 200,000 people;
• Please note that if before the rapid growth of a token it was practically not traded on exchanges, this is a dangerous sign. There is a high probability that the price was artificially “pumped up”;
• Sharp growth on the first minute candle;
• The coin rolls down dramatically in just a couple of minutes. Typically, a long green candle is followed by several red stripes. It often happens that after a minute sharp rise, the price slightly “balances” up and down;
• The token begins to be actively traded from the very first minute. In this case, you should not have high hopes, so as not to be greatly disappointed. This peak of activity can last for half an hour, after which a protracted period will follow again. If you are an optimist, you hope for the best that the price will rise. But in most cases it will slowly but surely merge.

There is a “game of greed” here, so if you do not want to lose your funds, it is better to exit it when the token rate reaches the previous maximum level. Of course, there is a possibility that the rate may rise even more during the second wave of the pump, but where is the guarantee that this will really be the case? You should not blindly believe in the sharp positive dynamics of the altcoin. Most likely, everything will happen exactly the opposite - and you will lose much more.

Registry Settings Files

In addition, in order not to waste time on manually setting parameters for Windows memory dumps, I post here ready-made .reg files, one file for each recording mode:

Download: Small memory dump

Download: Kernel Memory Dump

Download: Full Memory Dump

Types of pumps

What types of pumps are there?

Short-term pumps

With a short-term pump, the thick green candle “shines” for no more than half an hour. Typically, high positions last only a few minutes, or even seconds.

Short-term pump of the DATA cryptocurrency
// Source: Binance.com
This chart shows the pump of the DATA token. As we can see, in just 1 minute the price increased from 0.00000600 to 0.00001384. The pump lasted no more than 7 minutes, so only those who managed to get into this period won. And, of course, the diapers themselves.

Long-term pumps

A long-term pump follows the same pattern as a short-term one. The only difference is time. A pump can last for several hours or even several days and is often accompanied by tempting news, such as the release of a new update or a cool partnership, which in fact turns out to be a dud. Such fakes are launched either by the developers themselves or by opinion leaders, while the project team remains significantly silent at this time.

Is it possible to earn pump?

Making money on a pump
Some traders believe that they can take advantage of the moment and make money on a pump. In theory this is possible, but in practice the chances of success are minimal.

You need to be able to distinguish between short-term and long-term pumps and dumps. A short-term pump lasts from several minutes to a couple of hours and is designed exclusively for members of a special group. Only the organizers make money from it.

During a long-term pump (lasts several days), after preliminary pumping of the rate, third-party traders come into play who see growth and want to buy a fast-growing asset. It is at this stage that you can try to make a profit if you buy at the start of the pump and sell before the price goes down.

In theory, this looks possible, but during the pump, events develop too quickly and price forecasting tools do not work. Therefore, most traders, in pursuit of easy money, miss the time when they need to sell, and then the price drops sharply and they are left with nothing.

Why doesn't anyone punish pumpers?

Pumpers
In the cryptocurrency market, the organizers of pump and dump schemes work openly and are not afraid of anyone due to the lack of legal regulation. On the Internet you can find sites dedicated to pumps, and the Telegram messenger has many special channels. The thing is that manipulation of cryptocurrency rates is not punishable by law.

The best cryptocurrency exchanges fight against pumpers on their own to preserve their reputation and can block the accounts of the organizers of such schemes. For example, since November 2022, the Bittrex exchange began to strictly suppress the actions of pumpers.

“We will block or suspend the account of any user if we suspect them of being involved in this fraudulent scheme. And we will involve the relevant authorities,” representatives of Bittrex.

In addition, Bittrex removes traders' outdated orders that were created more than 28 days ago. There's really no need for them, so they are removed to clean out and organize the order books. Bittrex has also doubled the minimum trading size.

The American Commodity Futures Trading Commission (CFTC) is also fighting pump-dump schemes. She proposed rewarding whistleblowers involved in such schemes with up to 30% of the amount. In addition, the CFTC regularly warns users about the risks associated with investing in cryptocurrencies, and also conducts educational programs on how to “not fall for the bait” of cunning manipulators.

But there are many small trading platforms on the market where scammers will be only welcome, because they will bring new traders and the exchange will earn on commissions from transactions.

Therefore, the only way to fight against pumpers is the common sense of the traders themselves

, because no one wants to fall for this bait twice. But here, too, scammers have their own tricks. After each pump and dump, they publish pre-prepared false information from fake community members who allegedly made a profit. And everyone who lost money is accused of violating the instructions of the organizers and is therefore themselves to blame. This is an old, but unfortunately very valid psychological technique.

How can an investor protect himself from such price surges?

The lack of centralized control over the cryptocurrency market leaves the investor without government protection from financial manipulation. Now the trading platforms themselves are concerned about this issue. The owners of exchanges rightly decided that fraud compromises the business, causing fear of new clients. In the fall of 2017, the Bittrex cryptocurrency exchange introduced restrictions for traders and began blocking the accounts of clients detected in manipulation, transferring information to law enforcement agencies. At the end of 2022, the Bitstamp crypto exchange, one of the oldest on the market, announced the introduction of a platform from the developer Irisium to monitor suspicious manipulations, which should increase the level of user protection.

In February 2022, the company that owns the famous Bitcoin exchange Poloniex made a statement about the start of using special monitoring tools in its work to detect pump&dump schemes. Another Bitcoin exchange, Bitfinex, announced the introduction of the Shimmer tool in the spring of 2022, which is designed to create fair conditions for traders and increase confidence in the platform’s prices.