#pumpanddump What is Pump and Dump?
In the financial sector, the practice of "pump and dump" involves a fraudulent operator buying a security and then artificially inflating its value by spreading false or misleading information to increase its price and create a false impression of its value. Subsequently, the fraudulent operator sells the security at that inflated price, leaving unsuspecting investors with losses while he profits.
Challenges posed by the "pump and dump" method:
The "pump and dump" systems present significant challenges and issues:
Market manipulation: The integrity and trust in financial markets are undermined by the manipulation of security prices.
Deception of investors: when unsuspecting investors are misled and buy overvalued securities, they suffer financial losses.
Regulatory concerns: These schemes raise regulatory concerns related to market fairness and integrity, transparency, and investor protection.
Verification of information: verifying the accuracy of information in real-time is difficult, making it easier for criminals to spread their false narratives.
A classic example of "pump and dump" is a social media post promoting a small and lesser-known cryptocurrency that promises unprecedented returns. The dishonest investor has already bought the asset. Excited by the hype, the plan is for other investors to buy in and for the cryptocurrency price to skyrocket. Eventually, the initial promoter sells his substantial holdings at the peak price, causing a steep drop in value, and all investors who bought at the inflated price incur significant losses.
The opposite of 'Pump and Dump' is known as 'Trash and Cash', where the dishonest trader seeks to short sell the asset, 'trash it' in the media, and then buy it back once the price has fallen.
