Pump and dump (P&D) is an illegal and fraudulent activity to artificially inflate the price of an instrument such as a stock, security, or cryptocurrency by hyping it up and driving a buying frenzy. Once the price of the instrument balloons, the fraudsters will sell off their holdings in the market at a high cost and cause its value to crash, resulting in steep losses to several innocent investors.
Pump and dump schemes are very active in the crypto market, utilizing social media to drive up the hype and cause losses. The orchestrated fraud scheme will cause many social media followers to praise a particular crypto project or digital asset, encouraging buying activity in the market.
In the decentralized crypto market, which is not as regulated as traditional financial markets, increased buying activity can rapidly send the price of the token or coin higher. As soon as the price reaches record highs due to all the investor attention, the criminals behind the pump and dump scheme will step in and sell their crypto holdings.
Such a move will enable them to camp off with immense profits while causing the crypto asset’s price to crash. Often, the crypto project folds after such pump and dump schemes, leaving investors in the project high and dry.
