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Pump-And-Dump Schemes: How They Work In Cryptocurrency – CryptoGat (Ivan S.)

Recently we interviewed CryptoGat (Ivan S.) on Crypto Clothesline.  Here’s the story of a young man, 23 years old, with a huge social media following, who made a lot of people a lot of money, and who recently had a fall from grace after being found part of a cryptocurrency market manipulation (pump and dump) scheme.

“Cryptocurrencies and blockchain tokens might be relatively new to the financial world, but they’re vulnerable to the same kinds of classic scams and schemes that have plagued paper markets for centuries – plus some new ones.

The most common variety of scam that an average market on-looker is likely to see is the so-called pump-and-dump.

This low-volume, coordinated push has long been illegal on regulated exchanges. But in the wild wasteland of crypto, pump-and-dump schemes make every sudden rise and fall suspect. That’s bad news in a market that is almost defined by its huge daily swings.”

Martin McGinty of BlockBoxx talks of wacky tweets online inviting you to get into pump and dumps, and crazy giveaway green candles (on trading platform tables) that clearly indicate there’s likely market manipulation going on, especially with low cap coins.

Low cap coins are those which are still cheap.  Cheap to buy in bulk, (which is easy to do when a group of buyers pool their financial resources) thereby pushing or ‘pumping’ the price of the coin up.  This is the first wave, the first tier – the inner circle of investors, or those in the ‘know’ about a planned pump and dump.

Sometimes the people in this group can be ‘influencers’: players other people trust and follow.  Often these influencers have helped make their audience a HEAP of cash, so there’s been a history of positive experiences and the development of trust.

CryptoGat was part of this inner core – a trusted influencer.

Therein comes the second wave of ‘investors’.  These are usually the ones who follow (blindly?) the first group.  They are the ‘followers’ on Twitter and other social media platforms. They buy in next, pushing the green candle (an indicator on trading graphs which shows a price of a coin is rising) up even further.  They’ve paid more for their coins than the first group but have parted with less of their moulah than the next ones – the third tier or ‘Buy-At-The-Top’ suckers.

BATTs are the people who, suffering from FOMO (Fear of Missing Out) buy in thinking they’re missing the opportunity (which in effect, has an element of truth in it.). They paid top dollar because they’re trying to ride the wave, unaware that’s it’s just about to crash.  Effectively they have missed the opportunity but pay the most expensive (albeit artificial) price for the coin anyway: nowhere near its true value.

Here comes the ‘dump’ part: tier one (insiders) collectively sell their coins off at the top end, making a tidy profit.  Buy low, sell high.  Big grins.

The second tier follow suit; they follow what the first guys do. “If they’re getting out, then I will too.”  They may make a little, break even, or lose a lot, depends how quickly they move.

Given the candle can crash down in price due to the sudden sell-out over the course of only a couple of hours (even while you sleep), if you don’t get out, then you may miss out and lose your invested cash big time. Not so grinning…

And then the last guys come in wondering what the deal is: only to find that the price of their top-end hasty FOMO purchase has just crashed back down to its original value.  In their case, they’ve bought high, and been cashed out low.  If they have a heap of their own Fiat (cash) money in their trading accounts, the falling trade and falling price could keep draining their account.  If they have stop-losses in places, then the fall could be cushioned.  Either way, they’re not making money and they’re not grinning.

Ripped off, angry, hateful and blame-hungry – they are quick to point the finger and give the finger online too.

Though CryptoGat never actually followed through on the pump and dump scheme, his involvement and interest in the group was enough to smash his professional reputation to smithereens.

CryptoGat was afraid for his life at one point.  With over 100 messages bombarding him daily, he was receiving death threats, had his personal information hacked and was held to ransom for his crypto accounts.  He lost many professional engagements in projects and perhaps most importantly, spent a period of time living in grave fear for the safety of himself, his family, friends and loved ones.

Listen to the full podcast with CryptoGat (Ivan S.) here

By Abheeti Kathryn Pass

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