Welcome to the second chapter of our new weekly series #InvestorHeetMeinJaari.
After introducing you to the infamous Pump and Dump scheme, let us understand how you can identify this scheme today.
But before that, do you know the Pump and Dump Scheme is proliferating in the newly emerged Crypto market in India as well?
Yes, you read it right!
The crypto world has become the new hot spot for Pump and Dump scammers. Like the financial markets have Initial Public Offerings (IPO), Crypto markets have Initial Coin Offerings (ICO). Once ICOs began rising in 2017, numerous Pump and Dump schemes began emerging in the crypto market.
The nature of carrying out this scheme remains the same.
A crypto investor or a group of investors buy a particular digital currency, spread an enticing fallacy about it through social media platforms to inflate the crypto rate and then dump it once investors get onto the buying frenzy.
It’s interesting to see how these scammers increase their network. A small group of fraudsters open a channel on Telegram with members touting their trading abilities and successful trades in crypto currencies. Soon, they scan through the list of crypto investors to find potential preys. Once they have a list they offer bonuses or incentives to existing members for each new member they bring in.
Just as the stock market scammers use ‘micro-cap’ or ‘penny stocks’ to execute their Pump and Dump scheme, the crypto-world bets on ‘Small-cap/Altcoins’. Take for instance a meme crypto Dogecoin.
If you have been following the emergence of crypto currencies in India, you must have heard of “Dogecoin” at least once. The image below shows the price trend of Dogecoin from its listing on one of crypto exchanges.
From its listing in late February 2021, Dogecoin grew from less than Rs. 1 to an all-time high of Rs. 57 in May. That is a jump of over 5,600% in just three months.
Sure, Dogecoin gave abundant returns within a short period. Many generated millions. However, what happened with Dogecoin is a classic example of the Pump and Dump scheme.
Scammers pumped the coin till it reached the all-time high of Rs. 57 and have been dumping it ever since. People who invested in Dogecoin at the top anticipating the coin would go even higher, are still deep in the red.
So, whether it the stock market or crypto market, the question remains the same –How to identify a Pump and Dump scheme?
If you receive an unsolicited email/SMS
If you are going through your emails/SMS, and stumble upon an unsolicited email/SMS inviting you to invest in a lesser known stock/crypto or join a telegram channel, you are very likely the target of a Pump and Dump scheme.
Scammers often target a huge pool of data and send out blast emails/SMS to them as this is the easiest way to attract people looking to get rich quick. Even if only 1% of 10Lac recipients act upon the email, that amounts to 10,000 investors buying an endorsed stock/crypto. And these people are enough to send the price of a penny stock/altcoin soaring through the roof.
Social media and Message Boards Abuzzabout a Multibagger
With the advent of Internet, scammers have evolved their promotion tactics. Although a dedicated email/SMS still proves more beneficial, scammers have opened shop on Social media platforms as it is free, offers a broader reach, and everyone is on social media.
You come across a page or a group on social media platforms endorsing a lesser known stock with a low price and high interest for a short period. That should tell you’ve just come across a Pump and Dump scheme.
The price is sky high
Scammers usually intensify promotions when a stock/crypto is at top. After all, it’s difficult to ignore when a security has grown in leaps and bounds. Such sharp spikes in price without any fundamental shifts are routine examples of a pump and dump scheme.
That’s it from this article.
We hope this was an enlightening read and you are eager to know how to avoid being duped by these scammers.
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