Pump and dump

A pump and dump is a form of market manipulation. People artificially drive up a token’s price and then quickly sell for a profit.

What is a pump and dump?

The organizers often buy a lot of tokens themselves first. Then they promote them heavily online and sometimes promise big profits. This hype gets more people to buy the token, driving up its price. This is called the pump.

Next, the organizers sell their tokens. This is the dump. A lot of tokens then hit the market at once, and the price can drop quickly. People who buy late are often left with losses.

An example of a pump and dump

Imagine a group urges people online to buy an unknown token at a specific time. The group says the token will quickly become much more valuable.

The organizers have already bought the token. Once new buyers push up the price, they sell. The price then drops sharply. So the call to buy was mainly meant to attract new buyers.

Why are pump and dumps important in crypto?

Pump and dumps mainly happen with small crypto tokens. With these tokens, a few large purchases or sales can have a big impact on the price. Low liquidity means there may be too little trading activity and too few buyers to absorb trades.

So news about a token’s sudden rise or fall could point to a possible pump and dump. A rapid price increase, lots of online hype, and calls to “buy now” are warning signs. They don’t prove that manipulation is happening, but they do call for extra caution.

A small group of wallets holding a lot of tokens can also be a risk. If these large holders sell, the price can drop quickly. Taking part in a pump and dump is risky and can cost others a lot of money.