It is very important to understand what Pump and Dump is if you are in the Bitcoin or altcoin trading business. Especially if you are just starting out as a small-scale trader. Not only understanding, but also how Pump and Dump works and how it differs from ordinary coin buying and selling transactions.
Pump and Dump is not part of the basic Bitcoin code. Pump and Dump is a “game” or scenario engineered by traders. This scenario is, of course, made to profit especially from small-scale traders who “panic” about market conditions.
What is Pump and Dump? Read our description below.
What Does Pump and Dump Mean?
The term Pump is defined as “pumping” or “forcing”. What is meant here is pumping or forcing the price of coins by hoarding so that coins reach high prices.
Pump activity occurs due to the actions of traders who have big problems. They bought a lot of coins. The minimum number of coins offered in the market will automatically make the price increase.
This condition will affect the appearance of Dump activity. Rising coins usually attract small traders to buy. When there is a lot of demand for the coin, big traders who have hoarded will dump.
The term Dump in trading is defined as “throw away”, i.e. releasing coins that have been stockpiled below the highest price so that the price in the market decreases.
How Pump and Dump Works
As previously mentioned. Pump and Dump is a tactic of high-interest traders to make quick profits from “panic” small traders.
This event does not occur completely automatically as an effect of the accumulation of supply and demand transactions for coins in the market. There is a game of engineering traders to create the panic situation in question.
It starts with a trader or group of people buying and hoarding crypto coins. Usually the chosen coin is a coin that is not well known. It aims to get a sufficient amount of hoarding because they buy cheap coins.
Understanding the importance of stockpiling is the first key to knowing what Pump and Dump is. The hoarding is done slowly and gradually. They don’t buy in bulk right away. So don’t be surprised if this can take weeks or even months.
Everything is done so that hoarding does not attract the attention of other traders. Pump and Dump is a strategy that does require patience. One small step, hoarding efforts can be smelled by other traders and will spoil the next move.
After hoarding they will create an issue in the chat column of traders and say that the price of coin X will go up. This tactic usually succeeds in grabbing the attention of novice traders with small capital. The development of this issue is very important in
The situation in the market will experience a bit of scarcity so that traders will find that the price of the coin has indeed soared. This situation then creates panic buying.
Ithis is the moment where the hoarding tactics are successful in creating the desired situation. This is the moment Pump happens. The hoarders will charge very high prices. The price of purchased coins can increase by 2 times. Small traders will surely be confused and consumed by the market situation.
This scenario has not stopped. Those who have hoarded the coins will then release the hoarded coins slowly below the highest price so that buyers will definitely take the coins from them. Small traders certainly cannot follow these price standards because they will not make a profit on sales.
It is at this moment that the Dump is executed. It is at the peak of this last scenario that you can fully understand what Pump and Dump is. The Dump process is the stage of reversing the market price situation.
When market prices go haywire, traders will sell the rest of their coins. The supply of the coin will then lower the price of the coin in the market. They certainly sell coins on a large scale and this price drop will still bring them 2 times the profit of the initial capital.
As the price of the coin drops, small-scale sellers will be attacked by panic selling. They also “throw” coins at low prices which further lowers the price of coins in the market. They will suffer losses due to changes in market prices that are so fast and drastic.
Such losses will not be experienced by big traders because they trade on a large scale and they have mastered the timing or the selling moment.
This process of price leader to market price reversal actually happens in a matter of minutes. So a time-consuming process is the collection of coins when it will be collected.
Disclosure of what Pump and Dump was when two crypto observers from Imperial College London conducted an analysis of cryptocurrency fraud transactions. The research was conducted in 2018. The research labeled the Pump and Dump strategy as a dirty activity.
For those of you who are beginners in this business, knowing what Pump and Dump means is useful so that you don’t get caught up in market engineering created by big traders. And if you have understood it, it is not wrong if you try to play when there is a price spike. If you sell at the right time, you can make a double profit.
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Author: Muhammad Zaki Fajrul Haq
Follow me at @mzfajrulhaq (Instagram) or @ZakiFajrul (Twitter).