Recently there are a lot of Pump & Dump groups emerging. To really understand what these groups are all about let’s first take a look at what a Pump and Dump actually is.
WHAT IS A “PUMP AND DUMP”?
Pump and dump scenario happens when a trader with a substantial amount of funds “whale” or a group of whales, artificially increase the price of a certain token or a coin by buying it, advertising it and convincing more and more people to buy it.
Of course, they buy the coins while they are cheap and when the price starts to grow (when people start to pour money into the coin and trading volumes get bigger) they decide when they have enough and just dump (sell) them. Because they bought it cheap, they have large quantities of the coins and when they sell all of their coins at once, the price goes down noticeably and other investors start to panic sell due to this and the price plummets.
There are many stages in the actual pump and dump process. After choosing the coin to pump, whales first build their positions to raise their market share to the point of being significant enough. They mostly do this through small buys so they don’t get noticed and the price doesn’t change too much. The lower the volume of the coin, the harder it is for someone to build a significant market share without getting noticed. Before the actual pump happens, these individuals sometimes test the people invested in a certain coin so they can find out where the resistance is and how much people are actually holding long term. When these individuals or a group of whales get the market share they wanted they can start the actual pump. The last stage is the dump. One way is to have a lot of small amount sells, the other is to sell already while the coin is being pumped.
It’s becoming more and more popular now for certain individuals and groups of people to offer information, alerts and »inside« information about pump and dump scenarios. They claim they know when a pump of a certain coin/cryptocurrency is going to happen and that they are going to tell you just in time for you to be a part of it and reap the profits.
SOUNDS PERFECT RIGHT?
Not exactly. First of all, a pump and dump scenario involves spreading misleading and often fake news so that more and more people get involved in the process. In general, the act of pump and dump is illegal in the traditional markets, not to mention morally wrong. But since there is little to no regulative on the cryptocurrency markets it’s hard for someone to be sanctioned for using this method. It’s also harder to tell real from fake news in the crypto world.
Groups are now being formed on social media, apps and other different platforms, to offer you a chance to profit from pump and dump. Some of them are free, most of them are only available after you pay a certain amount. Think about it for a second, if they knew something about a certain crypto that you don’t, if they really had »inside« information they would just buy more and wait for the information to reach the general public and the price to go up. Believing that they are here to help you profit and provide you with information you cannot obtain yourself is just highly unlikely.
CAN I PROFIT FROM A PUMP AND DUMP?
These groups are formed with the intention to get enough people to believe they know what they are doing. When they reach a high number of followers then they can actually pump a low trading volume coin by themselves just by creating a hype and misleading information around it.
So even if the group is free and owners claim they don’t make any money, to make it seem more legit and honest, know that they are profiting heavily solely because of your participation.
To answer the question above, you can profit from a pump and dump scenario if you really have enough information, but it is as dangerous as it gets. If you manage to buy the currency before the pump there is an extremely high probability for you to not be able to sell the coins when the bigger players stars dumping. Usually, these scenarios happen with coins that have a lower trading volume and when the dump starts you’ll need a lot of luck if you want to get out while still in profit since there is basically no one on the buying side.
I would advise you not to get involved in the Pump and Dump groups and not to take part in these scenarios. It is extremely dangerous and has a high failure probability. There are a lot of better and more educated decisions you can make in the crypto world to turn a profit.