How to identify and avoid a crypto pump-and-dump scheme?
Educating oneself about the crypto ecosystem is crucial for investors to pursue during a bear market while awaiting a bull cycle. That being said, having a good understanding of crypto investment entails keeping an eye out for fraudulent projects that threaten to drain assets overnight, a.k.a. pump-and-dump schemes.
Pump-and-dump in crypto is an orchestrated fraud that involves misleading investors into purchasing artificially inflated tokens — typically marketed and hyped by paying celebrities and social influencers. SafeMoon token is one of the most prominent examples of an alleged pump-and-dump scheme involving A-list celebrities, including Nick Carter, Soulja Boy, Lil Yachty and YouTubers Jake Paul and Ben Phillips.
Once the investors have purchased tokens at inflated prices, the people owning the biggest pile of tokens sell out, resulting in an immediate crash in the token’s prices. While fraudsters disguise pump-and-dump schemes under the pretext of creating the next batch of crypto millionaires, knowledgable investors have the upper hand in identifying and avoiding their involvement.
Pump-and-dump schemes are usually accompanied by false promises around three broad categories — solving real-world use cases, guaranteed exorbitant returns and unwithered backing from celebrities and influencers.
The long-term success of a cryptocurrency is heavily dependent on the use cases it serves. As a result, people supporting pump-and-dump projects often suffice their involvement by highlighting the use cases the token aims to serve. In addition, such schemes typically rope in celebrities by upfront payments in cash and the project’s in-house tokens.
Celebrities then market the fraudulent tokens to trusting fans, usually with
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