Cryptocurrency is still in a place where within the general public many views it as a scam or illegitimate form of investment, and those are still kind ways of saying those terms. However, much has been done and is being done to remove this perennial image from the minds of people when it comes to cryptocurrencies, from it being integrated into various banking products to rulings by the SEC through to the huge number of crypto-based start-ups. Yet, even with all of this headway, there are still some who are using cryptocurrencies for fraudulent purposes, and thus we have found ourselves reviewing the rise of Pump and Dump scams in the trading markets.
This Is Not Only A Crypto Problem
Now this particular type of scam is most certainly not unique to the cryptocurrency world, nor has it only originated since the beginning of cryptocurrencies. This particular type of illegal activity has been around for hundred’s of years, according to the President of Financial Examinations and Evaluations, Inc. a Mr. Burke Files. This particular type of fraudulent scheme was one of the primary factors that helped to build the bubble of the stock market crash back in the 1920’s.
What Are They Anyway?
So, now the big question, what is a ‘Pump and Dump’ scam? Well, it is when someone buys an electronically tradeable item at a very low price, but then the people who have now bought this stock or ICO will now go around advertising it’s value everywhere. All of this advertising causes people to become very aware of the security and eager to purchase, the increased demand for the item causes a proportionate increase in price.
The price for the ICO or stock will now begin to grow to exponential but ultimately, unsustainable heights as people enter into a frenzy desperate to buy into the hype. In the end, though, all good things have to come to an end, and as the invisible forces within the market return to put things into equilibrium, the price drops dramatically causing all the people who had bought the stock to lose a lot of money.
A Finger Was Pointed
Over the years there have been quite a few scandals as many have pointed the finger at some of the key names within the ICO game as being part of a coordinated cartel for pump and dump schemes. During the last few months of 2017 Roger Vêr, along with a few other Bitcoin investors were singled out as being heralds for a ‘Pump and Dump’ scheme after BCH jumped from a starting point of $600 at the beginning of a week and reached $2 500 by the end of that same week. Yet, just a week later BCH fell down to $1 000 causing a massive furor.
In order to advertise new cryptocurrencies many promoters for these scams will use apps such as WhatsApp since it is highly secure, while the vast majority of these people operate within a very limited capacity. However, there is apparently a few more loaded participants who assist in helping to drive the prices high. One thing is for certain if cryptocurrencies truly want to become mainstream they will have to minimize the instances of these scams.