Cryptocurrencies are relatively new, but there are already dozens of strategies that allow earning on this instrument with varying success. Despite the fact that standard technical indicators are difficult to apply here, there are strategies that take into account corridors formed by resistance and support levels. Some people try to earn on fundamental analysis: they follow the forks, news from developers and regulators. There are also tactics built on the psychology of “whales” and “hamsters”. “Hamster shearing” involves artificial manipulation of the market: its collapse at the moment of peak growth, when the price is accelerated by fans of “free cheese”.
Cryptocurrency pumping could be referred to the third type of strategy, but it has a unique distinction: in most cases, pumping has an ideological organizer, an inspirer, who creates all the conditions. That is why this strategy is often compared to a scam. Pump & Dump can to some extent be compared with HYIPs. This is also in a sense a pyramid, but the number of those wishing to earn on them has not decreased. The secret of the popularity of HYIPs or Pump & Dump is not in the possibility of making money (the risks are highest), but in the excitement. And the pleasure of trading is sometimes much more valuable than the potential profit. Read on to learn what a cryptocurrency dump is, how to organize it, and even make money from it.
What is cryptocurrency pumping
Pump and Dump is an artificial creation of sharp movements of cryptocurrency quotes due to the large volume of open transactions in one direction. The growth, respectively, is replaced by an equally deep collapse, called “dump”. In other words, the organizer (pool of organizers) develops a strategy that will spin the quotes of the selected asset so that in a short period of time they “shot” by 100% or more, taking the cream off at the peak of growth.
The Pump & Dump strategy came to cryptocurrencies from the stock market, where this tactic was more of a fraudulent nature. In this regard, the story of CYNK, which with a debt of $1.5 million, was able to spin a month. It was able to go from $0.06 to $21.95 in a month. THE COMPANY WAS FORCED TO HALT TRADING ON THE STOCK. Trading of the stock was forcibly stopped. In the stock market, pumping is a pure pyramid scheme, but cryptocurrency pumping is a planned action in which many take part knowingly.
How to Pump Cryptocurrency. The general principle of a cryptocurrency pump is as follows:
- A pool of pool organizers selects a cryptocurrency. Most often the organizers are a group of traders who consciously come together for this purpose, as a single investor is often not
- interested in such games. The cryptocurrency must have a throwaway price (ideally less than a cent), a small capitalization and a stable horizontal price chart. That is, the coin is of
- interest only to a narrow circle of investors, and most have never heard of it at all. It is good, if the coin has a convincing legend, which gives confidence in the prospects.
- Organizers begin to gradually buy up the cryptocurrency in small volumes so as not to cause a wave of demand. At the same time, some kind of information occasion is created around the coin in the media, on forums or in social networks. There is also the second variant: deliberate promotion of the “pump” in channels (about it below).
At the moment of jump start the rate is given such a boost, that investors, warmed up by news background, start to accelerate it. The stronger the rate rises, the more investors want to invest in it. The final rate is formed more often by “hamsters” – lovers of fast money, who do not have any knowledge.
At some point, the organizers of cryptocurrency pumping and dumping meet the demand. The price stops and even goes down. The number of waves is adjusted by the organizers. Sometimes at the peak the entire purchased stock is drained, and it happens that there are several waves. Pump organizers do not let the rate fall all the way down, satisfying the supply at psychological levels. “Hamsters” take the decline as a correction and put money back into the market again. The amplitude of the second wave may be larger than the first, but then a decline follows.
If only the organizers know about Pump, the scheme could be safely equated to a pyramid. But here we can draw an analogy with brokers who warn traders about possible risks. Cryptocurrency investors also bear risks by making investment decisions without analysis.
In practice, cryptocurrency pumping looks like this:
- E-Coin. The market capitalization drop in January more than doubled hurt many cryptocurrencies. But not E-Coin. While the entire market was in decline, the coin soared 4,742% on February 6. Being somewhere below TOP-500 (and now even below TOP-1000), the coin managed to enter TOP-20 according to CoinMarketCap (coinmarketcap.com) for several days.
It is noteworthy that at that time the VTS was testing its psychological lows around $6,000. IT IS NOTEWORTHY THAT THE STS WAS TESTING ITS PSYCHOLOGICAL LOWS AROUND $6,000 AT THE TIME. One of the versions could be called an overflow to other alts, but the flat horizontal price line in 2017 shows the lack of interest in the project. You can clearly see the nature of the waves on the chart: the high of the second wave is higher than the first, the third dump is the deepest. Then the inflation of the bubble could have stopped, but the organizers squeezed a few more waves out of it, after which the rate went down.
- Quark. Another interesting example, on which it is very convenient to analyze the surges.
One of the common situations is the pumping of cryptocurrency coming out of the ICO. At this moment, you can create the most successful news background by promoting the legend of the project. Many cryptocurrencies at the start go up first, then collapse and do not rise again. But Quark is also interesting because it was the subject of another classic two-wave plunge in mid-summer. The third peak in January 2018 has nothing to do with the plunge and is related to general capitalization growth.
- U.Cash. Another clear example of how you can make money on the pumppa at the time of the ICO. The coin rose sharply at the moment of its appearance and even after the collapse was able to partially repeat the success of the previous wave. On the chart you can observe a few more local small bursts, the nature of which is also close to the Pumps.
TRON cryptocurrency is not “junk,” so it needs institutional capital to capitalize it and for its pumping. And large investors aren’t interested in pumppings. The peak growth of the coin’s price coincided with the general growth of the cryptocurrency market, that’s why we are not talking about a dump here. For similar reasons, bitcoin or other cryptocurrencies are practically excluded from the TOP.
How to Identify Pump on a Cryptocurrency Exchange
Recognizing Pumps and Dumps is relatively simple: if a sharp price spike is not confirmed by a fundamental factor or a general increase in market capitalization, then it is artificial. True, the fundamental factor can also turn out to be a specially thrown in “duck”.
Signs of a bump:
- A cryptocurrency has a price of a few cents, and its capitalization is several thousand (tens of thousands) of US dollars. Coins with capitalization of several millions can also plummet, but the volume of trading plays a role here;
- there is a skew in the price of a particular cryptocurrency on different exchanges;
- suddenly there are recommendations on forums and social networks with calls to buy the cryptocurrency.
Pumping can also be organized. Every investor is able to become a member of a community where organizers post a schedule of cryptocurrency pumps, exchanges and assets. Some of the specific information is adhered to and reported in the last seconds. More often than not, coins are pumped on smaller exchanges, as large ones do not support “junk” cryptocurrencies. Another reason is that large exchanges restrict pumping strategies, considering them fraudulent. Although there is an exception Bittrex and Yobit are called the leading platforms for pumping.
How do you know when a cryptocurrency pump is going to happen. There are two options:
- Participate in Telegram messenger communities. It was not chosen by chance. Its end-to-end encryption system allows you to create chats with limited access without revealing the
- identity of the participants. The most famous channels: Pump Notifier (about 24,500 investors), PumpKing Community (about 11,000 investors), Crypto4Pumps (about 14,000 investors), AltTheWay (about 8,300 investors).
Order of organizing the pump:
- In the channel, the organizers of the pumpa post information about its basic conditions (exchange, asset). The so-called promoters (channel participants, dedicated individuals) start buying up the asset, creating the first wave on a simple infopoint.
- The promoters vigorously spread the information on the forums, attracting “hamsters” who further accelerate the market.
At a certain point, when the number of uninitiated traders reaches a critical mass, the channel promoters receive an order to dump the coin at the peak. Channel participants are in profit, “hamsters” reap the benefits of their greed.
- Telegram channels cooperate with each other because it is in the interest of the organizers to attract as many investors as possible. Groups can be open or limited access, free or paid. Organizers can disperse cryptocurrency in advance and publish information 60 seconds earlier in paid groups. At Pump & Dump, every second counts. By the time “hamsters” are just about to enter the market, investors from paid channels will have already started closing positions.
The Dump scheme has a large scale. To control the wave, you need to move orders instantly, and therefore professional Pumps are algorithmic trading, where not traders, but bots (Moon Bot, HaasOnline) work. You can also use auto-clickers – scripts that allow you to simulate large trading volumes due to the high speed of placing orders (1 click in 1-5 seconds). A capital of 3-4 BTC is enough to organize the first burst of a PAM for a cryptocurrency with the price of 0,001-0,002 USD.
Pump & Dump is a separate strategy for those who primarily value excitement, rather than chasing income. Technical analysis is not used here (although evaluation of psychological support and resistance levels would not be superfluous) and fundamental analysis is only needed to be able to determine where the artificially created price spike is and where the natural volatility of the market is. Cryptocurrency pummeling can hardly be considered a fraud, though it is primarily the organizers who make money from it. Given that there is no legislation on the cryptocurrency market and transactions are anonymous, this strategy cannot be called prohibited. Pump & Dump risks can be compared to gambling, but the main thing in it is not profit, but participation. Do you consider yourself a gambling man and trading brings you pleasure? Then cryptocurrency pumping is for you, go for it! And may fortune smile on your face!
Shon Hill is a major investor and player in the investment market. He is an investment angel for various companies and knows a lot about technical analysis.