A pump and dump is a scam where promoters hype a coin or token to push its price up, then sell at the inflated price. Once they sell, the price usually falls fast and late buyers can lose most of their money, so be wary of sudden price spikes and tips that pressure you to buy.
How does a pump and dump work?
Promoters hype a coin or token to create a buying frenzy that “pumps” its price. Then they “dump” their own holdings at the inflated price, and the price falls.
The UK Financial Conduct Authority (FCA) calls it a form of market manipulation. The US Commodity Futures Trading Commission (CFTC) says crypto pumps target thinly traded or new altcoins and are often organised anonymously in chat groups.
What does a pump and dump look like?
In a May 2024 investor alert, the US Securities and Exchange Commission (SEC) described fraudsters who create a memecoin, tout it on social media and sell before the hype ends. The price then typically drops fast, and later buyers lose most of their money.
Pumps can be short. In one case described in a February 2018 CFTC advisory, the whole buy-and-sell cycle was over in less than eight minutes.
Why does it matter when you buy crypto?
Organisers count on your fear of missing out. The CFTC advises against buying coins or tokens because of social media tips or sudden price spikes. Research a coin and the people behind it first.
Coinmama’s support article on the risks of different cryptoasset types notes that meme coins can be exposed to these schemes.
What are the risks and red flags?
If you buy during a pump, you could lose most or all of your money. The FCA warns that no one can predict when the dump will come. Red flags include:
- A group chat of strangers sharing “hot tips” and pushing you to buy now.
- A sharp price jump with no news from reliable sources behind it.
- Promises of big, certain profits.
- A sudden celebrity endorsement, which may be an AI-generated fake.
A rug pull is different: a project’s creators take investors’ money and disappear. Paid, undisclosed promotion, known as shilling, can help start a pump.
Think you have been targeted? Read about common scams in the crypto industry and contact Coinmama support.
Go deeper: read the guide on whether Bitcoin is safe to buy.
