MUST READ: 24% of Newly Launched Crypto Tokens in 2022 Exhibit On-Chain Indications of Pump and Dump Scams

Pump and dump schemes, which involve the manipulation of asset prices through the spread of misleading statements, are not limited to traditional finance but have also become rampant in the crypto world.

The ease of launching new tokens and the anonymity enjoyed by bad actors make it easier to establish an artificially high price for the tokens on paper and control their circulating supply, leading to many instances of pump-and-dump schemes.

A pump-and-dump scheme usually starts with the creator of a new token promoting it on social media to attract new investors.

When many investors buy, the price rises, and the creator sells off all their tokens, causing the price to plummet, leaving unsuspecting buyers with worthless assets. In 2022, out of the 1.1 million tokens launched on the Ethereum and BNB blockchains, only 9,902, or 0.9%, experienced a drastic 90% or more price drop in the first week after their launch, indicating possible pump and dump activity.

This has led to unsuspecting investors losing $4.6 billion in total, while the creators of these tokens made a profit of $30 million. To stop these scams, the public and private sectors need to collaborate to create measures to curb pump-and-dump schemes in the crypto industry.

Who is responsible?

The rise of cryptocurrencies has brought about a new breed of investors, popularly known as “moon boys.” These are individuals who are optimistic about the future of cryptocurrency and are eager to see their investments soar to the moon. While there is nothing wrong with being optimistic, some moon boys take things too far and engage in shilling pump-and-dump schemes.

Moon boys are often responsible for shilling these schemes because of their eagerness to see their investments succeed. They will often hype up a particular cryptocurrency, making unrealistic price predictions and spreading rumors to encourage others to invest. They will use social media platforms, online forums, and even private messaging to reach potential investors.

The problem with moon boys is that they are not always knowledgeable about the cryptocurrencies they are promoting. They may not have done enough research to understand the fundamentals of the projects they are investing in. Instead, they rely on rumors, hype, and speculation to guide their investments, which can lead to disaster.

Moon boys often fall prey to the FOMO (fear of missing out) mentality, where they invest in a cryptocurrency simply because others are doing it. They do not take the time to research the project or understand the risks involved. Instead, they invest blindly, hoping to make a quick profit.

Unfortunately, moon boys are not the only ones to blame for shilling pump and dump schemes. There are also unscrupulous individuals and groups that engage in these schemes to defraud investors. They will often create fake social media accounts, websites, and other online platforms to make it appear as though there is genuine interest in a particular cryptocurrency.

It would be inaccurate to make a blanket statement that all cryptocurrencies are dangerous, as the risks and benefits can vary greatly depending on the specific coin or token. However, the lack of regulation and oversight, combined with the relative ease with which bad actors can create and manipulate new tokens, means that investors need to be extra cautious when navigating the crypto market.