Crypto pump and dump schemes exploit market manipulation tactics to deceive investors, artificially inflating a cryptocurrency’s price before a rapid sell-off.
While crypto fraudulent schemes have existed in traditional markets, the rise of digital assets and social media amplifies their reach and speed. Crypto scammers leverage misinformation, aggressive promotions, and hidden incentives to lure buyers, creating an illusion of demand before orchestrating a price collapse.
Understanding the mechanics of crypto pump and dumps and recognizing what are the warning sign of a fraudulent crypto scheme is important to protect your assets and avoid financial losses.
What Is A Crypto Pump & Dump Scheme?
A crypto pump and dump scheme is an investment scam where asset holders artificially inflate the price of a cryptocurrency before selling it for a profit. This tactic manipulates market demand and often results in losses for unsuspecting investors.
Fraudsters use false claims and misleading information to attract buyers. They spread hype through social media, online forums, or private groups to create a surge in demand. This phase, known as the pump, drives the price up rapidly.
Once the price reaches a peak, the asset holders sell off their holdings at the inflated value. This sudden sell-off, called the dump, causes the price to crash. Investors who bought during the pump end up with a devalued asset, often losing most or all of their investment
What are the signs of a crypto pump and dump?
The 10 main signs of a crypto pump and dump are listed below.
- The owners are Anonymous
- There’s a sudden rise in non-crypto creators promoting it
- The coin does not actually serve a purpose
- All the promoters are heavily invested in it
- The project experiences a sudden unexplained rise in value
- The owners actively block any criticism or negativity around the project
- They only have paid news coverage
- No one is really developing the project further
- They don’t appear on the credible crypto exchanges
- The owners or promoters were involved in previous scams
1. The owners are anonymous
Researching a project before investing is crucial, but this becomes difficult when the owners remain unknown. Transparency in leadership builds trust, and anonymous teams often indicate a lack of accountability.
Many scam projects hide behind fake social media profiles. They rely on influencers and other promoters to market the coin while avoiding direct association with the scheme. If the people behind a project refuse to disclose their identities, it is a strong sign that the investment carries significant risk.
Source: Unsplash
2. There’s a sudden rise in non-crypto creators promoting it
When influencers outside the crypto space suddenly start promoting a coin, it often means they are being paid for their endorsements. Fashion bloggers, fitness influencers, or celebrities with no financial expertise frequently advertise these projects without fully understanding them.
Some of the biggest crypto scams gained traction through celebrity promotions. Even well-known figures have endorsed projects that later collapsed, leaving investors with significant losses. If mainstream influencers push a project aggressively, it is worth questioning their motives.
Source: https://slate.com/technology/2021/10/ben-mckenzie-crypto-celebrities-kardashian-brady-lohan.html
3. The coin does not actually serve a purpose
Legitimate crypto projects usually have a white paper explaining their goals, technology, and real-world applications. If a project lacks a white paper or provides vague details, it is likely a red flag. A coin without a clear purpose offers no real value beyond speculation.
Investors should examine whether the project solves an actual problem. If the only appeal is the promise of future profits, it may exist solely to attract buyers before the eventual price collapse.
Source: Unsplash
4. All the promoters are heavily invested in it
Overly enthusiastic promoters often have a financial incentive to push the project. If individuals repeatedly insist that a coin is the next major investment opportunity, they may hold a large stake and aim to inflate the price before selling.
Investors should check whether key promoters have personal investments in the coin. Their enthusiasm may stem from the potential for short-term gains rather than genuine belief in the project’s value.
Source: Unsplash
5. The project experiences a sudden unexplained rise in value
A rapid and unexplained increase in price often signals a pump and dump scheme. Many investors get drawn in by rising prices, assuming the trend will continue. However, artificial price spikes usually collapse once insiders sell their holdings.
A steady and gradual price increase, backed by real development and adoption, is a healthier indicator of a project’s legitimacy. If a coin’s value doubles overnight with no clear reason, it may be a setup for a rapid decline.
Source: Unsplash
6. The owners actively block any criticism or negativity around the project
Genuine projects welcome constructive criticism and open discussions. If a project bans users or deletes negative comments from its forums and social media, it may indicate an attempt to suppress valid concerns.
Many pump and dump schemes operate through private online communities where only positive feedback is allowed. These communities create a false sense of enthusiasm, preventing potential investors from seeing warning signs before buying in.
Source: Unsplash
7. They only have paid news coverage
Reputable media outlets cover legitimate projects based on merit. If a project only appears in sponsored articles, it suggests that no credible sources find it newsworthy.
Scam projects often pay for promotional content to appear more legitimate. If all coverage of a project comes from paid sources, it may be a sign that genuine interest does not exist.
Source: Unsplash
8. No one is really developing the project further
Successful crypto projects require ongoing development and improvements. If most discussions focus on price speculation instead of technological progress, the project may have been created solely to attract investors.
Real businesses prioritize building a strong product before excessive marketing. If the team seems more interested in promotions than actual development, investors should question whether the project has long-term viability.
Source: Unsplash
9. They don’t appear on the credible crypto exchanges
Most well-regarded crypto exchanges have strict listing requirements. If a coin is missing from established platforms, it may have failed to meet industry standards for security and legitimacy.
While some scams do slip through, appearing on major exchanges provides a layer of credibility. Investors should check whether a project is listed on reliable platforms before considering an investment.
Source: Unsplash
10. The owners or promoters were involved in previous scams
A quick background check on the founders and promoters can reveal past involvement in scams. Searching their names alongside keywords like “scam” or “fraud” may uncover reports of previous fraudulent activities.
Some scammers attempt to cover their tracks by creating fake positive reviews or launching new projects under different identities. Cross-referencing multiple sources helps investors make a more informed decision before trusting a project.
Source: Unsplash
Are All Crypto Projects Scams?
Not all crypto projects are scams, but investors must learn to identify those that might be. Some projects have shady intentions and are designed to take advantage of unsuspecting traders.
A common red flag is the offering of low-cost tokens with very low market capitalization. Unlike established cryptocurrencies, these tokens often lack credibility and transparency. Their limited market presence makes them highly volatile and susceptible to manipulation.
Many of these tokens are not listed on major exchanges. Investors must go through multiple steps to obtain them, which can sometimes conceal malicious intent. Unregulated platforms or complex purchase processes increase the risk of fraud.
Like any investment, crypto projects come with inherent risks. Investors should only allocate funds they can afford to lose. Conducting thorough research before investing is crucial to avoiding to invest in types of trading scams and suffer financial losses.