pump and dump
A pump and dump is when insiders hype an asset to drive the price up, then sell to the people they excited, leaving them holding it.
In plain English
Somebody in a group chat is very enthusiastic about a coin you have never heard of. Everybody is buying. The price is rising, which appears to prove them right.
That is the pump.
A small group accumulate an asset quietly. Then they promote it loudly, through social media, group chats and influencers who may or may not know they are part of it. New buyers arrive, drawn by the rising price and the fear of missing something. The price climbs further, which attracts more buyers still.
Then the originators sell everything into that demand, all at once. The price collapses, and the people who arrived last are left holding an asset nobody wants.
It is common in cryptocurrency, where thousands of coins have no underlying business and the entire price is sentiment. It also happens with small, thinly traded shares.
The defence is boring and reliable. Be suspicious of any asset rising fast on enthusiasm rather than earnings. Ask who is telling you and what they hold. And notice that nobody who has genuinely found free money needs a group chat full of strangers to help them collect it.
If you cannot see who is selling, it is you they are selling to.
A coin rises 400 percent in a week on social media excitement. You buy near the top. Within days it falls 90 percent, and the accounts that promoted it have gone quiet. They sold to you.
Questions people ask
Is pump and dump illegal?
In regulated markets, yes, and it is prosecuted. In much of the crypto market, enforcement is limited, which is exactly why it is so common there.
How do I spot one?
Rapid price rises driven by promotion rather than earnings, coordinated enthusiasm, urgency, and no explanation of underlying value.
What should I do if I am holding one?
Decide on the underlying value rather than what you paid. What you already lost is a sunk cost, and it is not a reason to keep holding.
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