A pump and dump scheme is a type of investment fraud that is often seen in the cryptocurrency market. In a pump and dump scheme, a group of traders work together to artificially inflate the price of a particular cryptocurrency, often a low-market cap altcoin, through coordinated buying activity. Once the price of the cryptocurrency has been pumped to a certain level, the group then sells their holdings at a profit, causing the price of the cryptocurrency to crash.
The pump and dump scheme typically involves a few key players who work together to manipulate the market. These players often use social media and other communication channels to hype up the cryptocurrency, making exaggerated claims about its potential value or utility. They may also create fake news or spread rumors in order to attract more buyers.
Once the price of the cryptocurrency has been pumped up to a certain level, the group will then sell off their holdings, causing the price to crash. This leaves other investors who were not part of the scheme holding worthless assets.
Pump and dump schemes are illegal and can result in severe financial losses for unsuspecting investors. To protect against pump and dump schemes, it is important for investors to do their own research before investing in any cryptocurrency, and to avoid investing in low-market cap altcoins that are susceptible to manipulation. It is also important to be wary of overly-hyped cryptocurrencies that make unrealistic claims about their potential value or utility.
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