Are crypto pumps and dumps illegal?
Pump and dump is an old age technique in the financial world that quickly increases the monetary value of a given financial asset and sells it up for earning quick bucks. This technique has found its way into the world of cryptocurrency.
Although pump and dump are entirely illegal under security laws, in the world of cryptocurrency, it has become extremely popular. Blockchain technology and digital asset management are also using pump and dump methods to boost useless assets.
How does pump and dump work?
Using a well-planned marketing campaign or strategy, the value of a worthless is artificially increased in a pump and dump scheme. These strategies include false statements, misleading statements, social media posts and similar strategies are used to outreach the investors making them believe in the product’s valuation. Treating this product like it is once in a lifetime opportunity for the investors. (Pumping)
To show them the proof of their claim, they say that the price of this particular asset is rapidly increasing; they already have planned to artificially increase the value of the asset. Now investors start lining up to buy that particular asset.
When the worthless asset’s value reaches a certain limit, then these selective individuals who have planned the pump and dump scheme sell or dump their shares. They maximize their profit from selling out or dumping their shares when the asset is overpriced. After selling their shares, the overall value of the asset significantly decreases and creates an imbalance in the market resulting in the loss of the investors who bought the asset at an overwhelming price.
Pumping and dumping on the internet
After the discovery of the internet, creating a well-organised pump and dump scheme has become easier than ever. Initially, people had to plan a pump and dump over telephone or snail mail. But with the help of the internet, executing pump and dump has become child’s play.
Pump and dump with crypto coins
In the world of crypto coins, pump and dump are not illegal. The reason for this is that there is no regulation regarding crypto coins. Therefore even if pump and dump are totally unethical, it is not officially banned in the market of digital coins.
But there are cases where investors have gained one hundred per cent return on investment from a staged pump and dump in the crypto market. One such case happened 2-3 years ago where an altcoin group could pull off 950% profit in just 20 minutes.
The cryptocurrency market is still wild, and it is still possible to stage a pump and dump due to reason that there is no regulation or customer protection available. So it is important to beware of any kind of potential pump and dump scheme and not to wildly invest in crypto coins.