The anti-dumping policy is a set of rules that protect investors from falling victim to a pump and dump scheme. Pump-and-Dump Scams are becoming a trending practice used by many scammers; this invariantly has become the reason why many countries are stopping the trading of crypto., Crypto Pump-and-Dump Scams, Anti-Dumping policy. The anti-Dumping Policy in Cryptocurrency on its own is not a new topic in the stock market. It has made millionaires turn into beggars and beggars into millionaires.
Definition of Anti-Dumping Policy?
Anti-dumping policy can be a set of rules that can prevents investors from falling victim to pump and dump schemes. Dumping can be referred to an occurrence when a big investor that is also known as a whale; buys a huge number of tokens with the intention of increasing the price before selling them for a large profit.
Lets take for example the SQUID token, that was valued initially at only $0.01. As the price began to skyrocket, investors were barred from selling SQUID due to a number of policies in line; one of which was the “anti-dumping policy.” In a market structure with just buyers; when the price of SQUID skyrocketed the fraudsters ran off with all the invested amount. The token’s price plummeted from $2,856 to $0.00079 within a few minutes.
Tokens like THUNDERCAKE and DrunkDogeare not like this since they offer anti-dumping protection to investors.
We can safely say that more than 0.1 percent of the total supply of THUNDERCAKE tokens cannot be sold. Furthermore, the buy orders of the THUNDERCAKE tokens cannot exceed 0.5 percent of the entire supply. All of these rules are in place to keep whales out of their ecosystem and most importantly toavoid dumping.
Likewise, DrunkDoge regulates price volatility by prohibiting whales from purchasing or selling significant sums of tokens in a single transaction. It has an anti-dumping mechanism in place which enforces a 1/2/6 hour cooling-off period; increases tax after each sale to avoid excessive currency dumping.
More on Anti-Dumping Policy
To protect investors, more policies are put in place apart from the anti-dumping policy such as buybacks. Companies use a buy-back policy for many reasons—to lower the number of tokens in circulation with time. The aim is to significantly raise token values, generate speculation, and build hype.
Many projects have conducted buybacks including Binance, Nexo, and others. for example, Nexo buyback occurred because the core development team estimated their asset’s depreciation. As a result, they decided to restrict the number of project tokens in circulation which helped in improving the market price.
There are some ground rules one has to follow before investing in any token.
- Look out for social media groups that provide free signals indicating that a pump is about to commence. This is one of the signs to identify a P&D scheme wherein some of the group members can be directing the pump.
- Make sure to Seek financial guidance from an expert or try to conduct your own research to make smarter investing choices. always make sure you are careful of any influencer you follow who seldom discusses cryptocurrencies and then starts advocating a token randomly.
- Make sure you invest an amount that you can comfortably lose. It can be very possible for an investor to profit from a pump-and-dump if the timing is good, but it’s preferable to look forward to any mishap that finally leads to losing your tokens.
Ways That a Crypto Investors can Avoid the Scam
Its so true that Social media plays a big role in the crypto community, but that’s not always a good thing.
Tiktok, Reddit, and Twitter have become virtual gathering places among crypto investors and enthusiasts alike; which also makes them an important target for a particular type of scam called pump-and-dump. which can also be known as “rug pulls,” these scams took in more than $2.8 billion worth of crypto in 2021 and accounted for 37% of the year’s crypto scam revenue; up from 1% in 2020, according to research from crypto data firm Chainalysis.
Crypto pump-and-dumps are when conspirators use information that can mislead to raise the price of a currency; after which they sell it at a profit. A recent example is the experience of some investors with a themed “Squid Game” cryptocurrency. Some moment, the SQUID coin was growing in value, and the next, it was crashing. News has it that the coin’s creator took $3 million from investors.
A class-action lawsuit was filed in January which accuse Kim Kardashian and boxer Floyd Mayweather of pumping the price of EthereumMax; which is not related to Ethereum before company executives dumped the coin for a profit leaving everyone with basically worthless crypto. Kardashian and Mayweather did not reply to these claims.
There are over 17,000 altcoins, but experts advise to stick with Bitcoin and Ethereum. The reason is because they have long track records of value growth, compared to newer altcoins. With any crypto investments, experts advice you keep your holdings at 5% or less; and only investing in crypto if you have an emergency fund; have also paid down high-interest debt, and are also looking for a diversified conventional investing strategy.
For investors who perform experiment with altcoins, not only are they typically even more volatile; but they also come with extra risks like these pump-and-dump with other schemes, experts say. These is what you need to know about crypto pump-and-dumps, and how to avoid them.
What a Pump-and-Dump Scam is
When a group of traders, such as a coin’s founders or collaborators; spreads misleading or false information to inflate the price of an asset before selling off their shares at a higher price, it is referred to as a pump and dump scam. This makes regular investors to lose a lot of money; it is more likely to happen when buyers don’t research much about a coin.
In a largely investment market that is not regulated, things can get even more trickier. While pump-and-dump schemes are illegal in the stock market, regulations for crypto are still developing; so fraudsters are seizing the opportunity to see what they can get away with.
How to Completely Stay Away From Crypto Pump-and-Dump Scams
Before Buying a Crypto Coin Make Your Research
Its very easy to jump on a trend if you see others making money from it— or at least claiming to. “It takes a lot of of self-control not to want to do what other people are doing; let alone a celebrity that you love,” says Kiana Danial; founder of Invest Diva and author of “Cryptocurrency Investing for Dummies.”
This happened with penny stocks and during the dot-com bubble; because people didn’t understand what was going on but they wanted in, says Danial. “We had a lot of catastrophic results, and cryptocurrency is the same,” she says. “The reason why people are falling for it is that they don’t have any form of understanding.”
Danial recommends that before you buy a particular altcoin, investors learn about a given coin’s purpose, history, and community. “Go down the rabbit hole and see what this is about. What problem are they solving?” says Danial. Value comes from category kings (when a company’s name is now a verb, such as Google); or projects that help people do something better, cheaper, or faster, she says. “All the hype, all the FOMO is going to fade away; and the winners are going to be the ones that are actually creating value,” she says.
Pro Tips to Note
It’s very necessary to understand the asset you’re looking at; not just buy it because you like the idea of blockchain or decentralization, says Danial. “The markets move because of human psychology,” she says.
Crypto is unregulated and that makes it easier for someone to run a scam, said by Doug Boneparth; a certified financial planner and president of Bone Fide Wealth in New York. “You’re also having that hype factor, that “this is the new cool thing” factor,” he says. While a lot of people got rich legitimately for being early investors in crypto as a new asset class; these are still the early days of forming a new financial system. “In this newness, inherently comes a lot of noise,” says Boneparth.
To have a clear understanding for yourself, you can start with the Bitcoin white paper as a way of understanding peer-to-peer transactions; says Boneparth. “It’s a good primer in terms of understanding how blockchain technology works. You need to understand the underpinning technology behind all of this,” he says. “And you can continue to read about blockchains and cryptocurrencies.”
Crypto is the Wild West right now, says Boneparth. “There’s so much amazing creativity and utility but the extreme examples; both good and bad, drown out the more practical, long-term stuff that you should be paying attention to.”
The fact still remains that crypto is largely unregulated makes it riskier, so even more reason to do your research.
Play Before you Pay
If you wish to invest in riskier altcoins, start small and get a sense of how things work. “Just figuring out how to connect or link your checking account to an exchange and buy crypto is a big learning experience,” says Boneparth. “You’re now trusting a trustless system. When have you ever done that?”
Instead of throwing your entire portfolio into a coin you just heard about; try to start by investing a small amount like $1, $5, or $20, just to learn how things work. “It’s a $20 learning lesson that might pay you massive dividends by understanding where things are going; maybe it will open your mind to legitimate investment opportunities,” says Boneparth.
Don’t invest more in cryptocurrency than you can handle losing since crypto price and value are unpredictable.
Have a Strategy To Stick To
To Identify and stick to a strategy can make you less likely to fall for scams. Danial says she isn’t tempted by pump-and-dumps because she focuses on value investing; where a stock seems to be trading lower than its inherent value. “I apply Warren Buffett’s value investing methods, ironically, even though Warren Buffett is against cryptocurrencies; to my investment portfolios, and to my crypto investment strategy,” says Danial. Ethereum, for example, can be useful to create other Dapps and mint NFTs; so an investor can see its purpose beyond the coin itself.
Find out your strategy and risk tolerance, research the pros and the cons, and gauge the market sentiment, says Danial. “When I see a high, I’m like, ‘Oh, that doesn’t even fit in my strategy,” says Danial. “I’m willing to miss out on an ‘opportunity’ because I have a strategy, I’m good. I don’t look for trends on Twitter to say, ‘OK, what do I want to buy?”
Be Cautious of Celebrity and Influencer Promotions
The celebrity or the person influencing might have their own reasons to promote a particular currency; whether they’re getting paid as a spokesperson, they own the coin and want to pump its value; or they truly believe in it. But it’s almost certainly not that they’re just trying to help you get rich.
When you see other altcoin investors talking about how they are “so early” to a given new coin; try to find out why there’s reason to think anyone else is coming later to invest more money. “They’re encouraging your investment,” which will usually be the thing they are invested in, says Boneparth. “We’re growing, but that doesn’t mean go throw your money in; that means go learn as much as you can.”
Scammers may try to reach reach out to you personally and pretend they’re trusted influencers. This is a common problem for credible personal finance experts who have built engaged communities on Instagram; so dig in a bit if someone you follow appears to send you a message.
“I have over 1,000 impersonators combined on Instagram, TikTok, and Facebook,” Danial says. “They take my pictures, they take the pictures of me and my daughter, they kind of imitate my name; then they follow and DM my followers and scam them.”
If a person should reach out to you saying they just want to give you this great advice or free coins; Google the person’s handle and check if it matches the verified handle of the person they say they are; says Danial. “Do not respond to anybody unless you’ve done your research online and verified they’re the real deal. If it feels like a scam, it probably is,” she says.
Pump-and-dump scams have been existing ever since the conception of a market for securities. The idea is that a person or group of people buy into a thinly traded asset such as a penny stock when its price is low.
They then start disseminating positive news about the asset. More often than not, that positive news is completely contrived.
More on pump and dump scams
As more investors venture into the asset, the price continues to go up. Once the price is fully “pumped,” the originator of the scam sells their stake to the buyers still coming in. Since they own a substantial percentage of the outstanding shares, it sends the price crashing.
Pump-and-dump schemes are a form of fraud. The originators of the scheme planned it all out to take money from innocent investors by misleading them into buying an asset-based on false information. When those investors buy-in, the pumper is selling, which effectively pushes the price lower. The result is big gains for the scammer and losses for all those defrauded.
There are a good number of laws that make this illegal in the securities market. The Securities Act of 1933 specifically states that it’s criminal “to obtain money or property by means of any untrue statement of a material fact or any omission to state a material fact.” You can find similar language in the Securities Exchange Act of 1934. A pump-and-dump may also be considered wire fraud because the fraudsters typically use communication methods such as email, direct messaging, social media platforms, or direct phone calls to pump the stock.
A very good effective way to avoid a pump-and-dump scheme in the stock market is to focus on stocks traded on a well-known exchange such as the New York Stock Exchange or the Nasdaq. Those exchanges have strict listing requirements that won’t allow stocks most susceptible to pump-and-dump scams. In the cryptocurrency market, sticking with well-known and broadly adopted cryptocurrencies such as; Bitcoin (CRYPTO:BTC) and Ethereum (CRYPTO:ETH) and well-known exchanges like Coinbase (NASDAQ:COIN) and Binance should keep you out of trouble.
Stocks that are traded over the counter are more likely targets for fraudsters. In the film “The Wolf of Wall Street,” which is based on the activities of the Stratton Oakmont brokerage house; the brokers focused on stocks traded with pink sheets. Pink sheets have no reporting or registration requirements, making them susceptible to schemes like a pump-and-dump
Full Understanding Crypto pump-and-dumps
The crypto community remains the Wild West. There are many of exchanges, and it’s relatively easy to issue a new cryptocurrency. Therefore, it’s a breeding ground for thinly traded currencies and scammers who can pump and dump those assets.
However, a pump-and-dump crypto scheme starts with an organizer gathering influencers in a private group online. The Private group coordinate buying the target crypto asset to avoid price spikes. Once they’re ready to pump the asset and get the general public to buy in; the influencers will share information about the trade with their followers on social media. The organizers will then coordinate the sale, e.g.; the dump, in order to get everyone paid, leaving the public investors holding the bag.
What makes crypto especially vulnerable to this ploy is that organizers don’t have to search very hard for thinly traded crypto assets. They can just create them. The barrier to entry for creating a new cryptocurrency is just a little bit of research and coding knowledge.
So therefore, cryptocurrencies formed newly are largely unregulated. A person or group can create a token and make wild claims about its use; it’s unlikely they’ll face repercussions when those claims turn out to be nothing but false promises.
Lets take into example, several members of FaZe Clan, an esports and influencer group; promoted a new cryptocurrency called SaveTheKids in the summer of 2021. The coin promised to help children around the world, but this project turned out to be no more than a scam. The organizers and influencers made away with tens of thousands of dollars; their followers ended up with worthless crypto tokens.
How to identify a pump-and-dump crypto scam
It’s not fiff to identify a pump-and-dump crypto scam after the fact. But that doesn’t do cryptocurrency investors much good when the rug’s been pulled and they’re left holding the bag. It really important for investors to know the signs of a potential pump-and-dump scam before it actually happens.
The major step in avoiding a pump-and-dump scam is to do your research. If you see a relatively unknown cryptocurrency being touted by internet strangers, don’t rush to invest in it. Check out the token, find its white paper, and read through it. Determine who’s behind it and what the objectives are. Always do this for any cryptocurrency to determine if there’s long-term potential for it to increase in value.
If the token has already been in existence but development on the project seems to have disappeared; it’s best to avoid it. If the project has no clear purpose, it purports benefits that seem unrealistic; its development roadmap isn’t well thought out, or it’s associated with previous bad actors, those are all red flags, too.
If you normally dont follow influencers in the finance space, specifically cryptocurrency experts; but all of a sudden the people you follow are talking about a cryptocurrency, that’s another big red flag. Try to know why the fashion influencer you follow is talking about some cryptocurrency.
Dont rely on information from third parties
Lets say you discover a potential crypto investment on social media; it’s best to check out whether the project has its own website and social media presence. Move straight to the source instead of relying on information from third parties.
If you were not able to find any red flags in the documentation or in how the investment is being promoted; study how the cryptocurrency trades. If it’s on a well-regarded exchange, it’s more likely to be a safer investment. If you have to dig into some unknown DeFi exchange, you’ll want to dig deeper into the order book.
Most of the exchanges will show you all the open orders for an asset, as well as the order history. Check the pattern of the trading volume. If it’s spiked recently and volume appears to be trending higher, be cautious.
When you see big walls of the crypto asset on the buy side, there’s potential that a big group is making sure the price of the coin doesn’t fall below that price. Likewise, you may see big walls of sellers to make sure the price doesn’t pump too fast as the organizers pile into the coin. If you suspect a cryptocurrency is undergoing a pump-and-dump scam, it’s best to avoid it. It’s impossible to know without inside information when the organizers plan to sell. If you do have inside information, though, you’re probably better off contacting the Commodity Futures Trading Commission (CFTC)and providing the information to them.
The CFTC put out an advisory in late 2019 to advise and warn investors about potential pump-and-dump scams. It’s offering bounties to any whistleblowers. That means you don’t have to do anything illegal, and you might make more money by being an informant.
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