The cryptocurrency market is volatile and unpredictable. One tactic some entities and individuals use to take advantage this volatility is the “pump-and-dump” scheme.
A pump and dump is a situation in which a group or single entity artificially increases the price of a particular coin by buying large quantities of it. This causes the coin’s price to go up and may be viewed by other investors as a way to make quick profits and possibly buy it. Once the price rises, the person or entity that created the coin will sell it, which causes the coin to crash and leaves investors who bought the coin at a higher cost with large losses.
This is especially common in the worlds of lesser-known or alternative coins. These coins are more vulnerable to manipulation because of their low trading volume, lack of historical data, and lower trading volume. It can also happen with older coins.
Avoid falling for a pump and dump. Do your research on the coin and don’t blindly follow others’ recommendations. Avoid coins that have little historical data and low trading volumes, as they are more vulnerable to manipulation. To limit losses, you might also consider placing stop-loss order.
You can also protect yourself by diversifying your portfolio, and not investing all of your money in one currency. So even if a coin experiences a pump and dump it won’t affect your entire portfolio. Avoid buying coins at peak prices and wait for the dump to occur before you buy.
While the cryptocurrency market can be a great way to make a profit and invest, it is also important to be aware and protect yourself from potential pitfalls. You can make informed investments by conducting thorough research and being aware of the risks.