2017 has been a great year for cryptocurrencies because of the dramatic and exponential growth it has witnessed. The global financial institutions and corporations have shown keen interest in these developments which has resulted into a massive global coverage of the Cryptocurrencies over all social media platforms, television channels, Major news networks, magazines, newspapers and literally every other mode of communication. All this obviously has attracted a lot of people globally to this platform, who are trying to make most of their money and earn profits. Many people new to this realm invest mostly on advice, trends on social media or emotionally without doing a proper research. So if you are a newbie this post will definitely help you!
In this post I am going to illustrate and help you understand how a Pump and Dump works.
WHAT IS PUMP AND DUMP?
If you try to look the meaning of pump and dump online you will surely end up seeing definitions referring it to illegal price manipulation and inflation for profit which may leave you in a moral ambiguity and inability to make a firm decision. So let's get started.
PUMP: Basically pump means a sudden or gradual increase in the price of a coin or a token which is way higher than its original price. A pump can be engineered and planned meticulously by a single person or a large group of people.
DUMP: A dump is a decrease in the price of coin which occurs when a considerable amount of coins are sold in a short period of time usually when the price of the coin is high.
For instance consider a rich man invests one million dollars in a coin which is largely unknown and whose price is 0.01 $, so now he has 100000000 coins. This results in a price increase as other people too start to invest in the coin as the coin shows growth. Assume that this rich guy has lot of social media influence thus he further promotes more people to buy this coin which further increases the price of the coin to 0.1 $. Now the rich guy sees that the amount of coins he has is worth 10 million dollars so he decides to sell all his coins. When he sells all his coins at 0.1 $ he has 10 million dollars and walks with the profit while the price of the coin starts to decrease at a rapid speed which creates panic among the people who have invested in the coin listening to Rich guy, which further leads to a price drop. This results in a loss for several people who had invested in the coin due to the hype.
As many Financial Bigshots have said:
The cryptocurrency market is extremely volatile and unregulated.
So there is no one to regulate and control or stop pump and dumps but some exchanges do urge their members to discourage the practices, in reality though no one can really do anything about it.
BOTS: Yeah they are the state of the art artificial intelligence gone out of control trying to snatch our money. NAH I am JUST KIDDING! Bots are basically a form of software which incorporates various information and data which it utilizes for prediction of a favorable price.
These bots are used for placing orders while one is not present actually monitoring the movements.
Consider a bot is designed to execute a buy order as soon as a influential person tweets the name of the coin. This order is filled for whatever market price it is at the moment after the tweet on the exchange.
The conclusion is that there are many WHALES[ Rich price manipulating investors ], BOTS and VOLATILITY so it is necessary to be cautious all time if you are a novice.
Now we are going to see how a large number of people coordinate to pump and dump a specific coin.
This is a group which I have monitored continuously and I will be explaining in detail how the collective pump and dump works.
The name of the group is Big Pump Signal - Bitcoin Investment Group it also has another group as the members on the original group has a lot of members causing the discord servers to lag.
To be a part of this group you need an account on Discord https://discordapp.com/
The alternative group formed is known as Big Pump Signal Calls
The group has an active community with discussions going on all day. There is a rank system according to which the users used to receive the signal of the coin was going to be pumped. The group has a team which organizes pumps and plans accordingly days in advance.
The team is transparent regarding the time and date of the pump the users are informed about the exchanges where the pump is going to take place in advance. There are helpers to help the new people with their doubts the team also keeps the users updated. The coin which is to be pumped is declared by sending message on Telegram app https://web.telegram.org/#/login as the discord group suffers lags. At the specified time the signal/message is sent out on Telegram.
The coin pumping time and date is declared almost 2 days prior to the event.
I am going to show the analysis of the coin pump and dump done by this group on 7th January 2018
The coin pumped and dumped was $NAV coin. You can check out their website for more info of the coin https://navcoin.org/
The message was sent on 7th January 2018 6:00 PM (GMT) on telegram.
The action started on binance within seconds after the announcement. The price target was 4900 satoshi while the price before pump was around 2500 satoshi. The orders started piling up as soon as the signal was sent. The price shot up straight to 4900 satoshi in the first minute. Some orders of 5000 satoshi were filled too.
Two minutes after the signal the price dropped. You can also notice that the volume of orders before the signal was nothing compared to that seen during pump. To make any considerable amount of profit the saga lasted for 15 minutes but to make a good profit one should have bought at 2500 satoshi or less and sold in the range of 4000 to 5000 satoshi. The people who bought at prices between 4000 to 5000 satoshi may have suffered loss. The pump and dump was extremely quick.
4 to 5 minutes after the pump the prices were swinging in a bearish growth downwards resulting in price hikes as shown below. The green dot shows small price hikes which reflect that some people unknown with the pump were buying into it thinking its growing or they were people entering late trying to make some profits. Overall the pumped price went back to the original price. This lasted till about 16 minutes after the pump. The drops 1,2,3,4 show that most of the people who entered late were trying to make profit. The green arrow shows that profits were also decreasing.
The price was back around 2500 satoshi one hour later.
Now I am going to explain all this to you using the Bollinger Bands
Pre Announcement constriction shows that the price before pump was not very volatile.
The bullish expansion which we observe lasted for about 3 minutes.
*Do not confuse bullish move up with bullish expansion.
Bullish expansion shows the price is going to be bullish with volatility and without stability whereas the bullish move up indicates the bullish growth with less volatility and more stability.
As the price settles after the pump we see constriction which means less volatility and more stability.
This concludes that the pump and dump is extremely volatile.
After the pump and dump is completed there is a results section in the group which covers the success of the pump. The analysis is posted by Pump Team members.
That's all folks!
I hope you understood the idea of pump and dump and how they are engineered. Many people say that Pump and Dumps are scam and fraud while others counter this by saying that this is social engineering.
There is no answer to this. In trading one has profits whilst the other has deficits, Remember this. Do what you feel is right.
Upvote the post if you liked it! Feel free to ask any doubts you may have.
My earlier post was posted but the images weren't uploaded correctly, thanks for reading this post.