Pump and Dump
What Is Pump and Dump in Crypto?
A manipulative trading scheme where the price of an asset, often a low-value or obscure cryptocurrency or stock, is artificially inflated through misleading or exaggerated statements. Once the price has been "pumped" up and attracts other buyers, the initial promoters sell their holdings at a profit, causing the price to crash and leaving later buyers with significant losses.
How It Works
- Pump Phase:
- A group or individual spreads hype or false information about an asset to create excitement and drive up its price.
- This may be done through social media, forums, or private messaging groups.
- Price Surge:
- As more people buy in, believing the asset will continue to rise, the price inflates rapidly.
- Dump Phase:
- Once the price reaches a peak, the original promoters sell off their holdings at the inflated price.
- This sudden sell-off causes the price to plummet, resulting in significant losses for those who bought in at higher prices.
Example
Imagine a small, low-value cryptocurrency suddenly getting promoted across various social media platforms (or by various large investment firms) with claims that it’s the "next big thing." As buyers flock in, the price spikes dramatically. Once the orchestrators have sold their shares for a profit, the price collapses, leaving late investors with devalued holdings.
Why Can’t $OUIX be Pumped and Dumped?
When it comes to the original investors, we didn’t use any large investment firms, only retail traders. We also stipulated various demands, such as a very long cliff period. This means people can’t sell off their coins when we go live. Plus, a lot of our investors decided to stake their coins.
Key Takeaways
In short, a pump and dump is a scheme where big financial institutions buy up a ton of a new token, spread the word (often through influencers) how great the token is, and then, as people start buying and the price goes up, dump their assets, leaving the retail traders with a token that has now drastically gone down in price.