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Cryptocurrency trading is a complex and unpredictable process. Trading digital assets is risky, so a trader needs to learn, understand the trends and market dynamics. The jumps in the rate caused by the pump can be costly for the trader. We will explain in simple terms what a pump is in cryptocurrency and how to recognize it.
What is a cryptocurrency pump?
The cryptocurrency rate can change by tens of percent in just a few days, sometimes even within a day. The cost of a crypt depends on supply and demand, and large players often use this to create profitable trends in the market.
A pump on a cryptocurrency exchange is an artificial increase in the value of a virtual currency, which is caused by a massive buying of a coin. The obligatory part of the pump is a dump, an asset reset. Investors who bought an asset at a low price sell it at an inflated rate on the pump. Pump and dump are always together – this is an inseparable pair of actions. As a rule, pumps are created by large traders intentionally to make money.
Such traders are called “whales” in the market, and traders who have become victims of fraud and bought cryptocurrency at an inflated price are called “hamsters”. In the jargon of the cryptocurrency market, the process of pump and dump is called “hamster clipping”.
What can a pump look like?
Pumping in cryptocurrency is always a bait for novice traders who have not yet figured out the intricacies of the market. The organizers of the pump think over the action plan in advance, prepare the audience to buy the asset, throwing in the news that the coins of a certain crypt will soon increase significantly in price. Previously, the organizers buy coins at a low price, in order to sell them at a higher price to newcomers. The excitement around the coin raises its rate, because quotes on the crypto market depend on supply and demand. After the whales sell their coins, the rate returns to its previous level.
There are two types of pumps, long-term and short-term. A long-term one is being prepared for several days; coins are selected from the TOP-20 rating for it. For several days, the organizers are preparing the audience for a sharp rise in the rate of the top coin, and as a result, they increase their capital by several times. A short-term pump can take several minutes; new, but already known coins are chosen for it. Beginners are told that a cheap coin can shoot at any moment, and it is worth buying right now.
Whales buy a lot of cheap coins in advance, the rate of the crypt grows significantly, after which the whales dump the asset at an unreasonably high price. On the charts, short-term pumps are shown by a sharp increase in the rate, holding a high bar for several minutes, and sometimes even seconds, and a sharp drop in the rate.
What is a pump and dump on a cryptocurrency exchange, how to recognize them?
Any pump, short-term and long-term, has characteristic features. Pump is indicated by:
- a sharp increase in quotations;
- a significant increase in trading volume for a particular coin;
- discrepancy between the official information of the project and the news that are created around it;
- artificial excitement around insider data;
- unnatural growth of trading volume shown on charts.
Experienced traders can distinguish a natural increase in trading volume from a pump. The main income from the pampas is received by the whales who organize it. Unfortunately, there is no effective mechanism to prevent artificial inflation of the exchange rate. Therefore, a trader, knowing what a pump is in cryptocurrency, can only recognize it in time and try to earn.
How to understand what a pump is in cryptocurrency better, learn to recognize trends and make money on them? It is necessary to closely monitor the state of the market, be aware of the latest news, be able to distinguish trends and work with charts. All this you can learn on the course from the Crypto Crew team. We have created a training course for beginners, where everyone can master the skills of a successful trader, start earning on cryptocurrency in a month, choosing promising coins for investment and profitable transactions on the stock exchange. On the course, we tell in more detail what a cryptocurrency pump is and how manipulators work. Join to become whales, not hamsters!