Crypto Pump & Dump schemes
Crypto pump-and-dump schemes promise to make you quick and easy money. But is it really so? And what is a pump and dump scheme anyway?
Crypto Pump & Dump schemes explained
If you have been looking for ways how to make quick money with cryptos, you might have come across something called pump & dump schemes. Maybe you found some article about it in Google, maybe you saw someone promoting it in some social media channel.
Crypto pump and dump schemes promote themselves as a way to make lots of money independent of the market condition. Or some of them actually say that they help make money in bear market to make up for your losses and make some money.
Crypto Pump & Dump schemes – what are they?
Some say pump & dump is just a form of crypto scam. Others say it’s actually an opportunity to make money. By the end of the day, crypto pump and dump scheme is an attempt to artificially increase the value of some cryptocurrency. And normally the pump lasts only anywhere from a few minutes to maybe, just maybe a few hours.
Pump and Dump groups ask everyone in the group to buy the cryptocurrency at the same time to inflate the price and then quickly sell it for good profit.
Such pump and dump schemes normally increase the crypto’s value by anywhere from 100% to 50 000%. When the dump part ends, the crypto price usually comes back to what it was before or even lower.
See the chart below – this is how a crypto pump & dump looks on the chart. This illustration is taken from an actual pump-and-dump in Hotbit (exchange that is dead by now).
Are Pump-and-dump schemes legal?
Similar schemes can be used not just in crypto, but also in stock market or foreign exchange.
In stock market such market manipulation is strictly illegal. The Securities and Exchange Commission in the United States investigates all similar scams and insider trading.
However, when it comes to cryptos, it is not all that straightforward. In theory, yes, pump and dump schemes are not legal. But cryptocurrencies are not recognized as securities, and as such, the same rules don’t necessarily apply to cryptos.
Cryptocurrencies are still sort of an unregulated market. That’s why.
And while some regulated crypto exchanges might have safeguards in place to avoid such schemes, crypto field in general is still rather unregulated one.
So the topic of legality of crypto pump and dump schemes is a bit tricky one.
Can crypto pump and dumps actually make money?
Now let’s get to the money question. Literally. Can crypto pump and dumps make money?
The answer is definitely yes. But the more important question here is money for whom?
In most cases, crypto pump and dump schemes make money mainly for the select few, and most others either lose money with crypto pumps, or they make a very little amount.
Why or how is that? I’ll talk about that in a second.
How long do crypto pump and dumps last?
In most cases crypto pump and dumps last only a few minutes. Sometimes it can be done almost as soon as it started. Sometimes they can last for 5-15 minutes. Very seldom much longer.
Crypto pump and dump schemes – how do they work?
So how does crypto pump and dump scheme actually work?
From your perspective – you join some crypto pump and dump group. Normally you can find those in Telegram, and there are tens or hundreds of thousands on people in each of these groups (although, what’s the amount of real humans there would be a fair question).
The group owner announces that at 6pm on Tuesday (just an example) there is going to be a pump in Hotbit. They tell you to make sure you have some USDT in your account and be ready for the pump.
At 6pm they announce the crypto name and now everyone should be buying it quickly to pump the price.
Once the price is up, you have seconds or minutes to dump your cryptos, sell them for much higher price than you bought them for.
The entire process takes just minutes (or less) and during that time you need to be able to buy for good price, get your order filled, and sell the currency.
Most people don’t even manage to make their first buy before the price has already gone up a lot. This means that the crypto the price you’re buying the crypto for won’t be making much money to you anymore, and you will most likely end up in a minus.
Is that how pump and dump schemes really work?
Well, I did start the last section with the words “From your perspective...”
Now, how do the schemes really work? Obviously, the pumps don’t always follow the same structure, but it’s usually quite similar.
- Owners. Pump group owners choose the crypto to pump. They buy the crypto early on, maybe weeks before the actual pump.
- Paid members. Most crypto pump groups sell VIP memberships. VIP membership gives them the coin name that’s going to be pumped minutes or up to two days earlier. Now they buy the crypto. Note though that even the paid members here very often still lose money. Starting with the membership fee which can be a few hundred bucks.
- Free members. That’s you. At X a clock you receive the coin name and now you can buy the crypto.
- Social media users. During some slightly longer pumps everyone are urged to post in social media and pump the crypto among non-members of the pump group. The goal is to get them to buy the crypto as well and up the price of the crypto even further by doing that. So that’s when the social media users buy the crypto in hopes to make some quick money.
So as you can see, the entire process is not fair at all. And you can now also understand why such a thing should be illegal.
But...but...how can I make money with crypto pumps?
Is there a way to actually make money with crypto pump & dumps?
I already mentioned that the pumps are beneficial to just the select few.
So...well, simple answer would be that you can’t. You’re more likely to lose money. Unless you’re the pump organizer.
A more thorough answer though, would be that there are some options that can help you take advantage of the pumps.
And there are probably two main ways of doing it:
- You develop a way to figure out yourself which crypto is going to be pumped beforehand. Meaning, you can buy the crypto hours or days before the actual pump. And make sure you put hidden sell orders in place as well before the coin announcement in the group. Obviously, considering the amount of cryptos that might be chosen for the pump, it’s rather difficult (if not impossible) to figure out the coin name beforehand. I’ve tried!
- You use trading bots. There are some pump bots that that can recognize a pump the second the coin name is announced. It doesn’t give you a huge advantage as it figures out the pump seconds late. But after that it is able to trade on your behalf in matter of milliseconds, place buy and sell orders. So you might actually be able to make some money like that.
Crypto Pump and Dump groups
Most popular pumps are done through Crypto Pump and Dump groups in Telegram. There are different Crypto Pump and Dump groups for each exchange – for example there are Hotbit pump and dump groups, Gate.io groups, Kucoin pump and dump groups, even Mexc and Binance pump groups.
I won’t mention any links here, as I really don’t recommend you to join those schemes.
Recognizing crypto pump and dumps
Sad thing is that even if you’re not knowingly taking part of a pump and dump scheme, you might sometimes become an unwilling participant.
Maybe you’re seeing a crypto price starting to go up quickly and you decide to buy. Maybe you got a buy suggestion from your Twitter buddy.
Never make rush decisions. Never follow someone’s quick buy suggestions. Before buying any cryptocurrency, make sure to do your own research.
The easiest way to identify a pump and dump is when the price of some random, unknown cryptocurrency, suddenly goes up 100% or more percent, all in a matter of seconds or minutes.
When you suddenly see people promoting the same coin in social media. Sometimes you can also notice long pumps that way – when there are hundreds of commentators everywhere pushing the same random coin.
Conclusion – participate or not to participate in pump-and-dump schemes?
Crypto pump and dump schemes are generally for suckers. And in 99% of the cases they are scams where mainly just the owners, the creators of the scheme make money.
Others end up losing money, or making just a little extra.
So my suggestion would be – don’t participate in those schemes. Then again, should you be able to come up with a way to figure out the pumped coin beforehand, you might as well take advantage of it.
I became interested in cryptocurrencies only a bit more than two years ago. Since then I have been in investing in cryptos using different exchanges. And I also launched Cryptolorium.com when I started trading, just to share my crypto journey and my results.