Pump and dump (Pump and dump) is a market manipulation that leads to a very rapid and economically unjustified change in a cryptocurrency's price. The scheme consists of two phases: in the "pump" stage the price is artificially driven up, and in the "dump" stage the asset is sold en masse, crashing the quotes. Most often this is the result of the deliberate actions of an experienced trader or group of traders.
The catalyst is usually a notable news event — it does not matter whether positive or negative. Against its backdrop the "bulls" or "bears" begin to drive the trend that is favorable to them. This provokes panic buying or selling of assets, which intensifies the price movement, and at the right moment the organizers "skim the cream", taking profit at the expense of less experienced participants.
Characteristic features of the scheme
- a sharp price movement not backed by fundamental reasons;
- artificially created news noise;
- the return of the price to its initial level after the manipulation ends.
One of the key features of pump and dump is that after it ends the price usually returns to the value it had before the run-up began. Those who entered the asset at the peak most often record losses, so a critical attitude toward sudden market movements is especially important.
