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Understand the risks of pump and dump systems in cryptocurrency
The world of cryptocurrency has flourished in recent years, and many new users have entered the market every day. While cryptocurrencies offer a high degree of liquidity and flexibility, not without risks. One of the most significant dangers for investors is the pump and dump system.
What is pump and dump system?
The pump and dump system is a type of securities fraud that includes artificially inflation of the price of cryptocurrency or other financial assets by distributing false information on its value, making it more valuable than it really is. The system relies on a group of individuals to artificially inflate the price through coordinated marketing, false news or other tools.
How does the pump and dump system work?
Pump and dump systems usually follow this process:
1.
- Marketing Campaign : The company begins the cryptocurrency marketing through social media, E -Mail campaigns and other channels, creating hype around its value.
- Price Inflation : As more and more investors buy to the token, the price rises rapidly, making it more valuable than it really is.
- False News : False news or comments are made to support the pump and dump system to further inflate the price.
- dumping : When the price reaches a certain level, the group of individuals involved in the system is sold at the price of coins, which results in a decrease in the price.
Risks associated with pump and dump systems
While cryptocurrencies are generally regarded as a low-risk investment, pump and dump systems can pose a significant risk. Here are some possible consequences:
* Loss of Funds : Investors who buy in a pump and buy in a landfill system may lose their entire investment by selling them at inflated prices.
* Losing faith in cryptocurrency : Sudden impairment can lead to investors to lose the cryptocurrency faith and make them leave it or switch to other investments.
* Regulatory Problems : Pump and Dump systems are often examined by bodies that can be considered as securities fraud. This can result in fines, penalties or even stopping the system.
Examples of famous pump and dump systems
Many senior pumps and dump systems have been made over the years. One noteworthy example is the $ 1 billion Bitconnect Cryptocurrency Investment Scam, where a group of individuals made false news and social media entries to promote cryptocurrency, Bitconnect.
Another example is the 2017 ICO scandal, with Bitconnect competitors, Coincheck and Bitconnect’s own CEO, Kyubey Nakamura. The system included the distribution of false information on the value of cryptocurrencies, which artificially inflates their prices before throwing them at a loss.
How to protect yourself from pump and dump systems
In order to protect yourself from the pump and dump systems:
* Do your own research
: Before investing in any cryptocurrency, you should carefully examine the project and understand the technology, team and market underlying it.
* Check the information : Take care of fake news or comments. Check the information through reputable sources before sharing it with others.
* Diversify your portfolio : To minimize risk, distribute your investments in several cryptocurrencies.
* Monitor regulatory activity : Keep up-to-date on regulatory developments related to the cryptocurrency industry.
Conclusion
Cryptoraluts are a high-risk investment, and pump and dump systems are just one of many possible risks. If you understand these systems and take steps to protect yourself, you can make sound decisions about your investments and minimize your risk exposure.
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