Many cryptocurrency users are familiar with this scenario: they see a coin jump in value, and, in anticipation of the ‘next Bitcoin,’ buy-in, only to find themselves with a huge loss. Just hours or days after the price increase, it will suddenly plummet, leaving late buyers holding the bag.
The phenomenon is not uncommon in other trading venues either, particularly stocks and equities markets, but the lack of regulation means that scams to cause this sort of price manipulation are not illegal in the crypto world. In fact, the recent pump and dump plans in the crypto sphere may be being coordinated by outside forces.
Telegram of loss
The Russian app, Telegram, appears to be the main venue where the pump and dump schemes are being perpetrated. As reported by the Business Insider, a number of channels within Telegram are designed specifically for just this sort of market manipulation. With names like PumpKing Community, Crypto4Pumps and We Pump, these communities provide a venue for scammers to attract participants who then help the price move.
These channels offer information on specific coin pumps to those who subscribe and then encourage subscribers to buy in quickly. After the glut of buying and the resultant price increase, members reach out in other social media, encouraging further buying from unsuspecting victims. As the price continues to rise, the pumpers begin to sell, causing panic selling, and collapsing the price – the ‘dump.’
The victims are left holding the bag, and the coin value often ends lower than it did before the scam. The entire process is a scam from start to finish. With the SEC and other international regulating bodies coming on board, this phenomenon may be curtailed. However, for now, buyers should avoid such jumps unless underlying fundamentals provide reasons for the change.