Understanding the risks of pump and landfill in cryptocurrency
The world of cryptocurrency has flourished in recent years and many new users arrive on the market daily. Although cryptocurrencies offer high liquidity and flexibility, they are not without risks. One of the most significant investors threats is the pump and landfill.
What is the pump and landfill?
The pump and dump system is a kind of securities fraud that includes artificially spreading false information on the price of cryptocurrency or other financial instruments, which looks more valuable than it actually is. The system trusts that the individual group will increase the price through artificially coordinated marketing, fake news or other means.
How do the pump and landfill work?
Pump and landfills typically follow this process:
- The original coin offer (ICO) : The company creates a new encryption currency and starts ICO to raise funds from investors.
- Marketing Campaign : The company begins to market cryptocurrency through social media, email campaigns and other channels by creating a hype around its value.
- Price inflation : When more investors buy a brand, its price starts to rise rapidly, which looks more valuable than it actually is.
- Wrong news : To support the pump and landfill, the wrong news or messages are created that increase the price.
- Dumping : When the price reaches a certain level, the group of people involved in the system sells their coin at a raised price, causing the price decrease.
Risks associated with pump and landfills
Although cryptocurrencies are usually considered low-risk investments, pump and landfills can pose significant risks. Here are some of the possible consequences:
* Fund loss : Investors buying a pump and landfill can lose their entire investment if they sell at the expansion price.
* Losing faith in the cryptocurrency : A sudden loss of value can lead to investors lose faith in their cryptocurrency, causing them to give up or move to other investments.
* Regulation Problems : Pump and landfills are often examined by regulatory organs that can consider them as securities. This can lead to fines, penalties or even system extinguishing.
Examples of famous pump and landfills
Several high-profile pumps and landfills have been revealed over the years. One noteworthy example is the billion dollar Bitconnect Cryptocurrency Investment scam, where a group of individuals created false news articles and social media messages to promote their cryptocurrency bitConnect.
Another example is the 2017 ICO scandal, with Bitconnect’s competitors, Coincheck and Bitconnect’s own CEO Kyubey Nakamura. The system included the dissemination of false information about the value of these cryptocurrencies, by artificially emphasizing their prices before they burn it at a loss.
How to protect yourself from pump and landfills
Protect yourself from pump and landfills:
* Do your own research : Before placing any cryptocurrency, thoroughly examines the project, and understand the technology, team and market.
* Make sure information : Be careful with fake news or messages. Ensure the information through the reputable sources before sharing it with others.
* Your versatile portfolio : Apply investments to multiple cryptocurrencies to minimize risk.
* Follow the regulatory activity : Stay up to date on regulatory development related to the encryption industry.
conclusion
The cryptocurrency is a high-risk location, and pumps and landfills are only one of the many possible risks. By understanding these systems and taking action to protect yourself, you can make conscious decisions about your investments and minimize your risk series.