Pump and Dump (P&D) Scheme

Understanding the Pump and Dump (P&D) Scheme

As cryptocurrencies gain popularity, the occurrence of P&D schemes in the crypto industry has also increased.

In the crypto world, a P&D scheme involves a group of traders working together to manipulate the demand for a specific coin.

These traders not only choose a particular coin but also target a specific exchange for their activities.

Their goal is usually to artificially boost the trading volume of the selected coin, often focusing on coins with low trading volumes.

When the price of the targeted coin starts to rise, it attracts many unrelated traders, leading to an increase in demand and price.

This coordinated action is often repeated in the opposite direction, with the organizers exiting the market once a specific price target is reached.

Consequently, the price of the coin experiences a significant decline, resulting in substantial losses for traders who were unaware of the scheme and bought the coin based on false expectations.

Traders involved in P&D schemes typically communicate and coordinate their actions through platforms like Discord and Telegram.

According to the Wall Street Journal, P&D schemes in the cryptocurrency market accounted for $825 million in trading activity between February and August 2018.

The primary beneficiaries of P&D schemes are usually the core organizers, who profit at the expense of traders who fell for the unrealistic expectations.