Over the years, the cryptocurrency market has been well-known among investors for its high volatility and potential to yield huge gains and equally noticeable losses. During bull runs, the cryptocurrency market mostly witnesses a massive inflow of investment, resulting in a considerable surge in the prices of digital assets.
As a result of the vast inflow, the crypto sector is readily ripe for numerous trading opportunities during bull runs. Also, pump and dump projects also leverage the market momentum to attract investors who are eager to make instant profit. This article delves into why dump and pump schemes thrive during the bull market.
What is Pump and Dump?
Pump and dump refers to a manipulative initiative aimed at boosting the price of an asset through false claims, promotion, promises of huge yields, and many more. After inflating the price, the project team mostly sells off their holdings at the inflated price to make gains while leaving investors to count their losses.
Most times, this type of fraudulent scheme is common with lesser-known cryptocurrencies with a micro market cap, aiding bad actors to manipulate price movements more easily. Meanwhile, there are many factors that aid pump and dump projects to thrive during bull runs, and below are some of them:
The Psychology of FOMO
One of the primary reasons dump and pump projects thrive during crypto bull runs is the psychology of fear of missing out (FOMO). This psychology comes into play when the prices of digital assets rise; increasing media coverage and community buzz amplifies the excitement around a project.
Inexperienced traders are often attracted by the prospect of making quick profits, leading to a surge in asset demand. By that, the surge creates an opening for manipulators to carry out pump and dumb.
FOMO often ignites among investors when a cryptocurrency is experiencing a sudden price rally. With the fear of missing out on substantial gains, investors in mass numbers struggle to jump on the project.
Accordingly, the increasing buying craze will further push the asset’s price, producing a self-fulfilling prophecy. As the price increases, those rallying for the project can sell their assets for profit, leaving late buyers with huge losses as the value of the token tanks.
Increase Market Activity
Bull runs are characterized by high market activity, encouraging more investors to join the investing community. Additionally, the increase in trading volume can establish an avenue for bad actors to carry out their pump and dump schemes effectively.
Furthermore, experienced investors will be keen on established and sustainable projects, drawing attention from emerging altcoins. During this period, the prices of lesser-known altcoins primarily fluctuate, therefore making it difficult to evaluate their actual value.
Hence, pump and dump orchestrators can sometimes capitalize on that and exploit investors.
Social Media Influencers
Undoubtedly, social media is a powerful tool in influencing market trends. During bull runs, most social media platforms like X, YouTube, Discord, Telegram, and Reddit are major hotbeds for discussing trending cryptocurrency projects.
Similarly, influencers across those platforms and different project communities can easily sway public opinion and drive the demand for a cryptocurrency with their endorsement. Understanding the influence of these individuals and their platforms, bad actors mostly utilize them to spread fake information and drive the hype of their projects.
Thanks to their coordinated efforts, the hype can help push the rapid increase in interest and investment in a cryptocurrency, triggering a price rally. When the price hits a particular level, those behind the pump and dump project can pull their investment, make gains, and leave new investors with an uphill task of recouping their funds.
Lack of Regulation
Unlike the traditional financial markets, the cryptocurrency space still largely remains unregulated. This absence of comprehensive regulatory oversight allowed pump and dump projects to rise without fear of legal repercussions.
However, some regions and governments across the globe are gradually implementing various regulatory measures to repel bad actors and protect investors. Conversely, the decentralized nature of cryptocurrencies made it challenging to implement regulations effectively in the sector.
Without a doubt, the absence of proper regulation can make the cryptocurrency space lawless, giving room for bad actors to exploit investors. Likewise, in most pump and dump cases, investors are usually not aware of the potential risks connected with a particular project.
In the absence of rules protecting investors, during bull markets, the vulnerability of investors to fraudulent projects is amplified as the sumptuous promises of huge gains mostly cloud their judgment.
Parting Words
Pump and dump projects mostly thrive during the crypto bull runs due to psychological fears, increased market activity, lack of regulation, social media influence, and many others. While those behind them net huge gains, it often leaves investors with huge debts and loss of funds.
Proper orientation and stern regulation can help reduce the rate of pump and dump cases, further protecting investors against bad actors. Without being checked, the illicit activity can further push away investors from the cryptocurrency sector.
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