Be aware of ‘Pump and Dump’, tricks that novice investors should be cautious of

There are many forms of scam, even in the investment. One of the scams that are very popular by using the benefits of social media to spread the news is called “Pump and Dump” also known as “Speculation” of stock. What is this scam like? ACU PAY will explain it to you.

What is Pump and Dump?

“Pump And Dump” literally translated as “push and smash” is a kind of scam by speculating stocks, including digital assets such as coins or tokens with little or no asset value to be an exorbitant value.

Players in the market with a lot of investment funds (called Whale) will speculate the prices of the projects and attract investors by advertising on social media and using financial influencers such as YouTubers or Twitter (X) users who are famous for advertising.

When people thought this asset was going to be popular and make good money, they went in and bought it until the price of the asset reached its peak. When the target was reached, the teams that were speculators, or whales, would sell those assets and make the most of the profits.

Then the stock price would drop sharply, which would prevent investors from recovering their capital. Whoever invests in the asset will hurt a lot for sure.

Example situation of Pump and Dump

Thai Thai Alcoin such as KUB and JFIN in 2021 were also in the Pump and Dump process, shattering the dream of becoming rich overnight of many retail investors. This situation also happened to the world’s 10th-ranked coin, LUNA, in 2022.

How to notice and prevent the trick of Pump and Dump

Avoid investment with an exaggeration of propaganda
Avoid investment or the Rug Pull project that is advertised by celebrities or famous in the industry to invest in that asset because this may also be a speculation.
Check the fluctuations in questionable prices
Before making any investment, investigate price fluctuations, especially sudden fluctuations in prices, both stocks and tokens This may be signs of sudden speculation or Pump and Dump till the price suddenly soars.
Also, investors should carefully check their information and choose to invest in stocks or digital assets that have been trusted for a long time rather than invest in something new that has no clear origin or that has an undisclosed owner because it is easy to deceive.
Observe the liquidity
This is another way to observe investment, especially investment in digital assets. Liquidity is important in determining the future of tokens. Low liquidity should be avoided because speculators can easily cheat. Simply add a few thousand dollars to the pool and increase the value or price of tokens.
Observe the proportion of whale investment
It is another easy way to detect the fraudulent Rug Pull by checking how the wallets of whales or large investors hold that asset. For example, if these whale wallets contain as much as 20% of all existing tokens, it may be possible that fraud will occur in the future because they can decide to discard tokens and reduce the value of assets in just a few seconds.
Currently, we can check via SuperApp or Whale Wallet tracking tool to analyze tokens. For example, the platform of “Nansen” with Token God Mode and Wallet Profiler features.
In conclusion, the Pump And Dump strategy is to trick most investors into believing that it is really valuable. Whales or speculators will trade with each other to push the price higher and may spread the word about the company or create stories to persuade investors to buy assets. Investors who see the price of assets rise day by day decide to buy accordingly. When it reaches a certain level, the major asset holders come in and sell, and those who have a large number of shares sell them quickly, and those who buy later lose.