Many of you have probably heard about the Pump&Dump schemes in the cryptoworld. I would like to explain my view of this way of earning/steeling money and am eager to learn how my fellow steemians think about it.
THE PROCESS:
The P&D scheme often happen in groups where large groups buy a certan coin (mostly a new coin or a coin with almost to no marketcap) at the same time. Just like with the ordinary stock markets this will cause that the value of a coin will rise rapidly. This part of the process is called the dump phase. The buyers(pumpers) hope by inflating the market price that uninformed potential new buyer outside the pumping group will buy the coin as well from the pumping group in order to sell these expensive (the so called dump phase).
THE GROUP:
P&D groups start up daily with a very small inner circle of people who are aware of this "scam". In order to have as much people buying the coin, these groups plan such dumps sometimes days ahead and the most inner circle will anounce the P&D to a smaller outer circle of people. In many cases these smaller outer circle has to pay for this information (up to sometimes 25 BTC) but they will have the chance to have leverage from the P&D as well, as they get informed some seconds (yes indeed, seconds) before the P&D takes place. These seconds give them the chance to buy relatively low and give the the opportunity to sell higher.
As shown in the schematic graph above several layers can be found, but the more you are at the outer side, the higher the risk is that you will eventually loss (on) your investment.
- The P&D organizers, very small group, are always succesfull
- The inner circle, the pre-pay for the information when the dump will take place which give them foreknowledge, but despite this advantage their successrate is already lower, because technical difficulties (such as bad internet connection) can cause them also to be to late.
- The pre-informed inner circle got its information from the inner circle, but this will not mean that the sharing of this information is done to "help" this ring of people. The inner circle hope that these people will buy as well and also spread the word. From this point onwards it already becomes a big risk of loosing money. By carefully judging the buy/sell graphs it can already be abvious that a certain coin is pump as the price goes up very rapidly.
- The outer circle will probably read information on chatboxes and forums and will also become a victim.
- The outer most circle are the realy victims. The organizers hope that bypassers "don't want to miss the train" and buy the coin without any knowledge of the coin. They buy it because the increase of the value can now be spotted in the graphs of the coin. These people buy for a sky high price which eventually goes down again very rapidly.
THE DUMP:
The goal of a dump is to have bypassers buy because of the quick increase of the coin. When the coin comes to a certain (predefined) peak, the P&D organizers will quickly sell-off their coins which rapidly lowers the price. The organisers cash and the group will be closed.
Because crytocurrencies lack regulations, in comparance with the traditional stock exchange world, people will fall in the hand of fraudulent organizers. In the traditional stock exchange world it is actually illegal. In the cryptoworld there are many opinions about these groups, but my opinion is that it will eventually cause that a lot of people will loose there trust in crypto currencies. It is also clear that innocent (non informed) people will loose a lot of money. Therefor I would like to learn from my fellow steemians what your idea's are and what you would do (HOLD/HODL).