Understanding the risk of pump diagrams and dropping in cryptocurrency
In recent years, the world of cryptocurrency has been developing, and many new users enter the market every day. While cryptocurrencies offer a high degree of liquidity and flexibility, they are not without risk. One of the most important threats to investors is the pump and dump scheme.
What is the pump and dump scheme?
The pump and dump scheme is a kind of fraud related to securities, which involves artificial overstatement of the cryptocurrency price or other financial instrument by distributing false information about its value, thanks to which they seem more valuable than in reality. The program is based on a group of people to artificially overstate the price using coordinated marketing, false messages or other means.
How does the pump and dump scheme work?
Pump and dump diagrams usually follow this process:
- The initial offer of coins (ICO) : The company creates a new cryptocurrency and starts collecting funds from investors.
- Marketing campaign : The company begins marketing cryptocurrencies through social media, e -mail campaigns and other channels, creating noise around its value.
- Price inflation : When more investors buys a token, its price begins to grow rapidly, which makes it seem more valuable than in reality.
- False messages : False articles or posts are created to support the pump and drop scheme, additionally filling the price.
- dropping : When the price reaches a specific level, a group of people involved in the program sells their coins at an inflated price, causing a decrease in price.
Risk related to pump and drop diagrams
While cryptocurrencies are generally considered to be low -risk investments, pump diagrams and discharge can be a significant risk. Here are some potential consequences:
* Loss of funds : Investors who buy a pump and dump program may lose the entire investment if they sell at an overstated price.
* Losing faith in cryptocurrency : Sudden loss of value can lead to a loss of faith in cryptocurrency, causing that they abandon it or switching to other investments.
* Adjusting problems : Pump and dump diagrams are often examined by regulatory bodies, which may perceive them as a fraud of securities. This can cause a fine, penalties and even closing the program.
Examples of the famous pump and screenshots
Over the years, several loud patterns of pumps and drops have been revealed. One noteworthy example is the investment fraud of BitConnect cryptocurrencies worth $ 1 billion, in which a group of people created false articles and posts in social media to promote cryptocurrency, Bitconnect.
Another example is the ICO 2017 scandal with the participation of Bitconnect, Coincheck and Bitconnect, Kyubey Nakamura. The program consisted in disseminating false information about the value of these cryptocurrencies, artificially inflating their prices before they were dropped with a loss.
How to protect against pump and dump schemes
To protect yourself against pump and discharge diagrams:
* Do your own research : Before investing in any cryptocurrency, thoroughly examine the project and understand its basic technology, team and market.
* Verify information : Watch out for false articles or posts. Before sharing others, verify information through reputable sources.
* Dize your portfolio : Spread your investments into many cryptocurrencies to minimize the risk.
* Monitor regulatory activities : be up to date with regulatory development related to the cryptocurrency industry.
Application
Cryptocurrency is a high risk investment, and pump and drop diagrams are just one of many potential threats. Understanding these programs and taking steps to protect yourself, you can make conscious decisions about your investments and minimize risk exposure.
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