What are pump-and-dump schemes in Bitcoin markets?
Pump-and-dump schemes in Bitcoin markets involve artificially inflating the price of Bitcoin through coordinated buying, followed by selling off large quantities to profit from the increased prices. Here’s how they typically work:
- Pump Phase: Coordinators of the scheme purchase significant amounts of Bitcoin and spread positive or misleading information to create hype and attract other investors. This increased demand drives the price up.
- Dump Phase: Once the price has risen sufficiently, the coordinators sell off their holdings at the inflated price. This sudden selling pressure causes the price to plummet, leaving unsuspecting investors with significant losses.
These schemes exploit the volatility and speculative nature of cryptocurrency markets, often leading to substantial financial harm for those who buy into the hype without understanding the underlying risks.
