One of the most impactful problems of cryptocurrencies today lies in the fact that they are susceptible to all sorts of machinations. However, the Anchor is practically impervious to black swan events and pump and dumps, while resolving the main problems of the crypto market – transparency, security, and trust.
People keep talking about how it’s hard to have trust in the crypto market. When every Reddit group has the power to upset the delicate balance of supply and demand, by pumping, and consequently dumping select currencies, lack of trust is a normal state of affairs.
However, not all news is bad here. It is possible for a cryptocurrency to be highly resistant to pump and dump machinations, and cryptocurrencies can become completely safe from them even independently from legislation efforts.
But we’ll get into that later.
First of all, how does a Pump & Dump work?
Pump and dump in crypto is a situation when a group gathers and organizes itself in order to earn a large profit off an asset. Group members start “pumping” the crypto by buying large amounts of it in a matter of days. As a result, due to an increase in demand, the price of their chosen coin will increase.
These groups usually target extremely affordable coins, those that are just entering the market,those with a low market cap, so that their efforts deliver the best results. They are further increasing the popularity of these coins, and persuading the public that they are constantly increasing value. For instance, they deploy social media outreach via Telegram groups with thousands of active users, and spam Twitter accounts, and promote the coins they’re pumping,
They even used Facebook and Google advertising for this, however, those practices have been permanently stopped thanks to newest alterations to terms and conditions for advertisement of ICOs and cryptocurrencies.
After the “Pump” has been successful, this group sells these coins at the same time. They earn a large profit, and the coin they invested in plummets back to its original price.
Aren’t Pump & Dumps illegal?
Yes, they are. Well, yes and no. These practices are illegal and unfair, but due to still unregulated crypto markets, they tend to happen rather often. Pump and dump schemes are legally regulated in the stock market, and are illegal, and SEC, London Stock Exchange, and the New York Stock Exchange sanction them. However, since cryptocurrency exchanges aren’t a part of the stock market, and are still not legally regulated, pump and dump is still not legally sanctioned on them. So, although they are technically not illegal yet, they are extremely unethical.
These events are taken to be normal by the exchanges, and are fairly frequent on Coinexchange, Cryptopia, and HitBTC.
Why are Pump & Dumps a terrible thing for crypto investors and traders?
If a pump and dump is well planned out and executed, it can cost investors and traders who aren’t in on it millions, and earn those who are in just as much, if not more.
Just imagine seeing that a crypto is on the rise, and all the reports claim that it will continue to be for the foreseeable future. You’d want to purchase it if you don’t already have it, or keep it if you do. The sudden rise lasts for days – 100%, 200%, 300% rising to almost 1000%. People wanting to invest in a crypto that promises tend to start buying when the demand rises, intending to sell when the value becomes steady. If they do this during a pump and dump, and fail to sell at the highest point, they will lose a large portion of their investment. You will see just how much can be lost on the example below.
TRON went from 3 cents in December 2017 to over 30 cents between January 1st and 15th 2018, just to plummet back down before the end of the month. Right now, it’s at a 26 cent mark but it took TRON a year to reach this number. In January 2018 it was barely worth more than 4 cents. For those who purchased TRON before the “pump” occurred, this was an opportunity to profit nicely. However, those who purchased this cryptocurrency at its all-time high, hoping that the upward trend meant wide adoption, or a potentially continuous growth in popularity, this was a huge loss.
The effect of Pump & Dumps on the crypto space
The biggest impact is the desintegration of trust. Because there were so many pump and dump schemes, and even more black swan events, people are now reluctant to invest. They don’t want to put their holdings in the hands of brokers, but they also don’t want them to disappear in a puff of smoke which might happen in the current crypto market.
Why is Anchor impervious to Pump&Dump?
What most cryptocurrency experts claim nowadays is that the next few years will be the time for stable coins to prove their worth and strive. However, not all stable cryptocurrencies are made the same, and most of them don’t have the necessary defense mechanisms that would prevent value manipulations.
Anchor is different in this respect. Anchor has a safety net supported by six pillars that ensure that no scheme or black swan event can affect its value. The Global Economy Pillar, the Daily Adjustment Pillar, the Investment Pillar, the Reinvestment Pillar, the Algorithm Pillar, and the Two-Token Model.
The main pillars responsible for the fact that Anchor is practically impervious to pump and dump strategies, are the Global Economy Pillar, the Algorithm Pillar, and the Two-Token Model.
How do they do this?
The Global Economy Pillar
The price of the Anchor is determined by a proprietary algorithm, the MMU. It is based on the stable growth of the global economy, which is approximately 2.5% on a yearly basis. So this pillar ensures a stable base for the value of the Anchor, and it is embedded in the system, and cannot be manipulated.
The Algorithm Pillar
Whenever inflation occurs, the system will use a validated formula to re-adjust the value of the token and keep the price stable.
The Two-Token Model
If all previous pillars fail to prevent changes in the value of the Anchor’s tokens, our two-token system steps in. The Anchor System is comprised of two tokens - The Anchor and The Dock. Dock Tokens are there to stabilize the system in case of fluctuations. If the price of the Anchor Tokens rises or falls suddenly, an expansion, or a contraction phase will be triggered, and the price will be stabilized to, once more, follow that of the MMU. They are internal tokens only, and are issued only in order to keep the value of the Anchor Tokens stable.
Simply put, there are six very sturdy walls, each higher than the last, in place. No way around, under, or over them.
In the End
So, pump and dump is a strategy that’s frequently used. It’s illegal in the stock market, but it still isn’t sanctioned in the cryptocurrency market. Which is exactly why this market is the most affected.
Black swan events are to be expected on every and any market, however, the pump and dump brings another layer of danger to the space of crypto. Its innate volatility is reason enough for people to be wary when stepping into this space, without additional machinations bringing their holdings into question.
Anchor responds to that need for stability, safety, and security. Its safety net comprised of six pillars ensures that no machination and no black swan events can affect its value. We firmly believe that everything you earn during your lifetime should preserve value. And that’s exactly why we worked so hard to ensure your holdings against volatility.
If you don’t want to constantly fret that your holdings in cryptocurrency will be manipulated through schemes, and you want to keep your earnings, register your interest in Anchor.
If you’re interested to hear more about The Anchor and meet our team, you can join us at the Blockchain Economy Istanbul Summit