The growth of the cryptocurrency market has given rise to «pump and dump» schemes involving low-value «shitcoins» — tokens with minimal utility designed to enrich their creators. Groups engineer artificial price spikes of obscure coins to profit, leaving ordinary investors holding the bag. Here are tips to avoid falling victim to shitcoin pump and dump manipulation.
How Pump and Dump Schemes Work
Pump and dumps typically involve organized groups who coordinate to rapidly drive up hype for a selected shitcoin:
- Targeting low-volume, low-value coins that are easier to manipulate.
- Spreading exaggerated or fake news to spur FOMO buying.
- Executing coordinated trading to create impression of market interest.
- Artificially inflating prices to hit target peak through wash trading.
- Cashing out their holdings once peak is reached.
- Prices crash once pumping ceases, harming late FOMO buyers.
The orchestrators profit massively while ordinary investors are deceived into buying at the top.
Where Pumps Are Organized
Pump and dump groups organize across platforms like:
- Telegram or Discord groups with thousands of members.
- Private group chats on messaging platforms.
- Signals groups promising insider info for a fee.
- Forums like Reddit or BitcoinTalk.
- Social media influencers who promote coins for payment.
They build hype leading up to the pump event to maximize participation and spreads across channels make coordination harder to detect.
Warning Signs of a Pump and Dump Scheme
Several red flags can signal an imminent pump event:
- Spikes in discussion about a low-value coin on forums.
- Influencers suddenly promoting a shitcoin.
- Vague «hot tips» to buy a coin without fundamentals.
- Promises of guaranteed returns or can’t miss opportunities.
- Countdown timers or calls to buy at a specific time.
- Claims of exclusive access or insider information.
- Little to no discussion of long-term project viability.
If encounter warnings like these, it is best to steer clear.
Protecting Yourself from Pump and Dump Losses
You can avoid being left holding the bag through smart practices:
- Ignore hype and FOMO — Make analytical buys based on research.
- Avoid low-value, low-volume shitcoins and tokens you don’t understand.
- Be wary of «signals groups» making buy guarantees or claims of special knowledge.
- Watch for rapid price spikes well above historical norms as a sign of manipulation.
- Have entry and exit plans before buying — Don’t chase pumps after the fact.
- Set stop losses to protect capital if declines start reversing.
- Keep position sizes small — Don’t invest more than you can afford to lose.
Staying disciplined, limiting downside, and avoiding hype-based investing makes you a harder target.
In an unregulated market, pump and dumps will remain an unfortunate risk. But following warning signs, applying rational investment principles, and ignoring FOMO can help prevent becoming caught by shitcoin manipulation schemes. With some prudent protections, it is possible to capture cryptocurrency gains without falling prey.