A market manipulation scheme to inflate and then crash a token's price.
Detailed Explanation
A pump and dump is a market manipulation scheme where a group coordinates to buy a low-cap cryptocurrency to artificially inflate its price (the pump), then sells their holdings at the inflated price to unsuspecting buyers who entered late (the dump). This leaves late buyers holding tokens that rapidly lose value. Pump and dump schemes are illegal in traditional markets and are increasingly targeted by regulators in crypto.
Why It Matters
Understanding pump and dump is essential for navigating the cryptocurrency ecosystem. This concept appears frequently in crypto discussions, market analysis, and project evaluations. Having a solid grasp of pump and dump helps you make more informed investment decisions and better understand the technology underlying digital assets.
Key Considerations
Pump and dump schemes are illegal in traditional markets and increasingly prosecuted in crypto. Warning signs include coordinated social media campaigns, sudden volume spikes on low-cap tokens, and aggressive price targets from anonymous accounts. If a token's price has already pumped by the time you hear about it, you are likely the exit liquidity.