Cryptocurrencies are assets with a high level of volatility. thanks to this feature, the exchange rate of the coin can significantly increase or fall in a short period of time. The mobility of digital assets allows them to be used for pump (pump) and dump (dump) schemes (Pump and Dump), which consist in provoking a rise or fall in price in order to make a profit. We offer to understand how it works.
How Pump and Dump Work
The main goal of each of the Pump and Dump schemes is to earn money. Pump and dump, which are also often called pump and dump, are reflections of each other. If in one case, for earnings it is necessary to trigger the growth rate of the assets, the other for profit to be reduces in value of the cryptocurrency.
What is a cryptocurrency pump – how it works
To make money on the pump, it is necessary that the cryptocurrency shows significant growth. The profit will be the difference in the exchange rate. for example, before the pump, the coin was worth $10, and during the pump, its rate reached the $20 mark. if a user who had $10 on his account managed to sell the asset for the maximum price, his profit will be $10. The trick is to catch the moment for a profitable sale of cryptocurrency.
To organize a pump, you need resources that will allow you to provoke market participants to buy coins. as an example, you can take a project recommendation from a popular member of the crypto community. the founder of the anti-virus software development company mcafee associates, us presidential candidate john mcafee, once distinguished himself by conducting pump schemes.
The developer often enters into discussions with members of the crypto community and gives forecasts for the further movement of digital asset rates. At the same time, John McAfee chose Twitter as the main platform for communicating with the audience. At the time of writing, the developer’s microblog has about 1 million readers, many of whom are members of the crypto community.
At the moment when john mcafee began to publish information about coins on twitter, including recommendations, many accused him of organizing pumps. In detail, the process can be represented as follows:
- John mcafee, despite his eccentricity, is popular and respected among investors. the mention of projects in his microblog repeatedly contributed to the growth of the asset rate.
- The publication of new recommendations by john mcafee, many market participants began to consider as signals to buy assets.
- Recommendations of cryptocurrencies in the analyst’s microblog allowed him to provoke outbreaks of coin growth. as a result, his twitter became for many the answer to the question, “how to find out when there will be a pump”.
To calculate the potential growth of the coin during the pump, market participants use various tools, including technical analysis indicators. for example, indicators of the oversold level of an asset.
Recently, members of the crypto community saw the Dogecoin cryptocurrency pump. The asset rate began to grow against the background of the spread of the viral video in TikTok. On the record, the blogger called for buying cryptocurrency, which at that time “cost practically nothing.” when buying a $25 coin in the event that its price reaches the $1 mark, the investor’s net income, according to him, will be $10,640.
Thanks to the video, the #dogecointiktokchallange challenge was launched in tik tok, where participants must invest in cryptocurrency. against the background of the blogger’s initiative, the coin’s exchange rate increased by 100% in two days. despite the pump, dogecoin is still far from the $1 mark.
The Dogecoin rally started on July 7-5 days after the video was posted. During this period, the coin was worth $0.002465. The exchange rate reached a local high on July 9 at $0.004926. Users who invested in Dogecoin at the beginning of the month were able to get more than 100% of the income when selling at the peak.
There are other ways to conduct a pump. For example, the pump organizer can pour a large amount of funds into the project at a time, thereby provoking the first wave of asset growth.
The strategy can be based on playing with the psychology of the market. seeing the growth of the asset, many investors, amid the fear of missing out, will start investing in the asset. thus, the positive movement will receive support and the organizer will have to sell the more expensive assets in time.
Another way is deliberate misinformation. Potential investors receive information that can positively affect the value of the asset. Against the background of fear of missing out, they begin to buy up cryptocurrency, opening up the opportunity for the pump organizer to make a profit.
What is a cryptocurrency dump – how it works
The task of the dump is to provoke a drop in the cryptocurrency exchange rate. Some use the scheme in order to get the opportunity to profitably purchase coins at a low cost, others to earn money on the fall in the price of digital assets. To do this, traders use so-called short positions. The scheme of work looks like this:
- A trader enters into an agreement with an exchange or other trading platform to borrow a certain amount of coins. the time of the transaction is also discussed in advance.
- The system records the value of the cryptocurrency that the exchange has issued in loans, at the current price. For example, bitcoins (BTC) for $10 thousand. upon completion of the transaction, the trader must return the cryptocurrency to the platform for the designated loan amount. In this case, for $10 thousand.
- After the dump, the value of the coin decreases. As a result, for the amount indicated earlier, you can buy more bitcoins. The trader returns the loan (BTC in the amount of $10 thousand). He keeps the remaining funds for himself.
In most cases, the trader also pays a commission for the loan.
Pump and Dump – two schemes at a time
Some manipulators use both schemes. In this case, the growth of the cryptocurrency is followed by an active fall in its rate. This is the scheme used by the organizers of the 999 project. The circle on the chart shows the pump period, and the triangle shows the reset period.
It is noteworthy that not always the active growth or fall of the cryptocurrency rate indicates the application of the Pump and Dump scheme to it. For example, a positive coin movement Crypto.com coin, which allowed it to enter the top 10 of the coinmarketcap resource capitalization rating, is based on the long work of the project team on its development.
Where to make money on pump and dump
In order to benefit from Pump and Dump, you need an account on the trading platform. Since pumping and dumping schemes are rarely legal, it is not superfluous to take care of the anonymity of the trading operations associated with them.
Regulators in many countries are trying to bring the crypto community out of the shadows. Russia is no exception. To do this, large digital asset exchanges are forced to collect data about users. So traders fall under the sights of the tax and other regulatory authorities.
The solution is to choose a completely anonymous trading platform. For example, – StormGain. Over the years, the platform has proven itself well in the crypto community. stormgain is characterized by simple registration – the process takes a few seconds. another advantage of the platform is access to a deposit bonus of 25 usdt. You can get it here.
Pump and dump schemes allow you to get a significant income in a short period of time if you have the appropriate resources. Manipulators can use them both individually and together. To other conclusions:
- Regardless of who organized the pump or dump, all market participants can profit from the schemes.
- In order to understand the nature of the active growth or decline of an asset, you need to have up-to-date information about the coin and what is happening with the project. Sometimes, in order to make sure that there is no deliberate pumping or dumping in relation to the cryptocurrency, it is necessary to conduct an analysis yourself.
- Some pumps and dumps can be predicted by tracking the recommendations of popular members of the crypto community.
Despite the fact that you can earn money by pumping and dumping, participation in such schemes remains extremely risky. the reason is that it is extremely difficult to predict the local high and low of the coin price.