Read it from the corner of your eye! – L’Expresso du Coin, the series dedicated to those in a hurry. Lightning-fast reading for beginners and experts alike, to keep you entertained over a cup of coffee. Small stories, crypto vocabulary and news to educate yourself while having a good time. In today’s Expresso, we’re going to talk about an expression that’s very common when you’re interested in stock market prices, cryptos included: the pump and dump.
History around the corner
Monday
A new crypto enthusiast, Martin Vestisseur spends his time in front of the quotes. But so far, it hasn’t been a great success. Martin looks at his phone screen with a sigh. His gaze riveted on the BTC chart displayed in 5 minutes on his Binance app, the budding young investor despairs. Every time he buys a crypto, every time he sells his bitcoins for ethers, his ethers for Doge, the price systematically goes in the opposite direction. It’s a real curse.
Of the 2,000 euros he’d invested – a good part of his savings – he’s already down to 1,300. It’s a real catastrophe that he’s constantly trying to repair, multiplying the risks to get it all back.
Tuesday
While complaining about his misadventures on social networks, Martin is contacted by a certain Claude Labonafaire. Apparently, he has a scheme to make a quick buck. A lot of money. A new token, the WOUFIhas just been listed on a secure but little-known exchange, he says. Under the radar for the time being, the price of the token is set to explode soon. And as luck would have it, Claude offers him the chance to be part of the party. But to do so, he has to buy the token this Wednesday at 6 p.m. sharp.
At first suspicious, Martin says to himself that Claude seems to know his stuff after all, and his speech is reassuring.
Wednesday
On D-Day, Martin spends the day registering on the famous FTF exchange (File Ton Fric). After a series of steps to create his account and transfer his money to it, Martin is able to breathe. At 5.50pm, he’s ready to press the « buy » button. For the moment, it’s dead calm on the WOUFI token price, so Martin will be able to take advantage of the surge.
At 6pm, as expected, the WOUFI token price starts to rise. At 6.01pm, the token has already gained 100%. Martin hurries to buy, as he’s not yet used to this interface. Phew, that’s it!
By 6.05pm, Martin has more than made up his losses, and is even in profit. At 6.10pm, Martin has doubled his capital. Not wanting to be too greedy, he decides to withdraw his money. Especially as red candles start to appear, and red on the charts is not a good sign.
At 6.20pm, Martin is panicking in front of his screen. The sell button doesn’t work. He can’t sell his chips. As he struggles, one red candle after another gradually swallows up the upside.
At 7pm, Martin collapses in his chair. He’s lost everything, he’s been had. Tweets are now mentioning the FTF scam. He’s just been tricked by a Pump & Dump group.
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In the Corner of your Head – Pump and dump
The pump and dumppump and dump is a behavior generally associated with trading. The idea is to make the price of an asset rise and then fall, violently if possible. When the price « pumps », this means that the value of the asset rises sharply over a very short period of time. Conversely, when the price « dumps », it means that it falls rapidly.
When a whale « dumps » its tokens for example, this means that a person or entity holding a sizable portion of the quantity of tokens in circulation in a cryptocurrency sells them en masse to the market. This influx of supply in a short space of time generally causes prices to plummet, as there isn’t enough demand to absorb it all.
This phenomenon is particularly visible during bull runs. Pump and Dump groups. These are people who organize themselves to buy the same token at the same time, usually with very low capitalization. This influx of demand causes the price to soar, and profits to be made by the masterminds of the operation. Quite often, the general public, having thought they’d profit from the deal, find themselves in the role of the last sellers once the price has fallen. Trading is a zero-sum game: one man’s loss is another man’s gain. These groups are mostly scams.
Stay in the Corner!
In this crypto market under construction, scams are legion. Malicious programmers and scammers take advantage of newcomers’ naivety to try and steal their money. A case in point is the recent announcement of PayPal’s new stablecoin, the PYUSD. In no time at all, dozens of fake cryptos posing as the real PYUSD soon invaded the market..
Investing is a wise idea in order to look for ways out of the galloping inflation that is now battering our economy. However, before buying anything and everything, especially in the crypto market, it’s vital to do your research first. The more you know about a market, the fewer mistakes you’ll make. Visit rushed by FOMO for fear of missing an opportunity can actually cost you far more than if you’d simply taken your time.
For you, blockchain technology and cryptocurrencies will soon be at the heart of everyday life for all of us. You can gain exposure to Bitcoin, Ethereum and other tokens on the leading exchange. Register now on the Binance platformand save 10% on your trading fees by following this link (commercial link).