What Is a Pump and Dump?
A pump and dump is a fraudulent market manipulation scheme in which the price of an asset, such as a cryptocurrency, is artificially inflated (pumped) through misleading information, hype, or coordinated buying, only for perpetrators to sell their holdings at the peak before the price collapses (dumps). These schemes are common in the crypto space due to the lack of strict regulations and the ease of spreading misinformation through social media and online communities.
Stages of a Pump and Dump Scheme
A pump and dump scheme involves artificially inflating an asset's price to lure in unsuspecting investors. Once a large number of people buy into the hype, driving the price higher, the orchestrators sell off their holdings, causing a sharp price drop. This leaves late investors with significant losses while the schemers walk away with profits.
Pump and Dump vs Rug Pull
Both pump and dumps and rug pulls involve deception, but they differ in execution. In crypto, pump and dump by definition implies artificially increasing the market price before a coordinated sell-off. In a rug pull, developers or insiders abandon a project after collecting funds from investors, often draining liquidity pools or smart contracts. Both are highly detrimental to investors.
Can I Pump and Dump Crypto?
Amid the volatile memecoin season of 2025, a lot of crypto investors ask, 'can I pump and dump coins?' or 'can I pump and dump legally?'. The answer depends on regulations. In traditional markets, pump and dump schemes are illegal, as they constitute fraud and market manipulation. However, in the cryptocurrency space, enforcement is inconsistent, and some traders participate in these schemes knowingly or unknowingly. Still, regulatory bodies are cracking down on these practices, and involvement in such schemes could lead to legal consequences.
Is Pump and Dump Illegal?
Is pump and dump illegal? Yes, in regulated financial markets like stocks, pump and dump scams are strictly prohibited. In the crypto industry, regulatory oversight varies by country. The SEC and other financial watchdogs have increasingly targeted crypto pump and dump scams, warning investors about their risks.
How to Identify a Pump and Dump?
A pump and dump chart typically shows a sudden and steep price spike followed by an equally rapid decline. Recognizing chart patterns and analyzing what drives a suggen price appreciation can help traders spot potential pump and dump scams. Some signs of a pump and dump include:
- Sharp price increases without fundamental news.
- A flood of promotional messages on social media or forums.
- High trading volume followed by a quick sell-off.
- Sudden interest in a low-liquidity crypto asset.
- Repeating candlestick chart patterns that indicate artificial price inflation.
Examples of Pump and Dump Cases
Several pump and dump scam cases have made headlines in the crypto space. In some anonymous pump and dump scams, organizers remain unidentified, making it difficult to trace culprits. Notably, influencers and public figures have also been accused of orchestrating schemes, leading to increased scrutiny.
One notorious pump and dump case was Bitconnect. The platform promised high-yield returns using a lending program and its BCC token. After months of hype and aggressive promotion, regulators cracked down on the project in early 2018, leading to an abrupt collapse. The price of BCC plummeted from over $400 to nearly zero within days, leaving thousands of investors with massive losses while early promoters had already cashed out.
A recent controversy arose when Donald Trump's memecoin launch triggered a backlash, with industry experts highlighting it as a potential case of market manipulation. While some users criticize and accuse Donald Trump of pump and dump on social media and forums, others commend the president and first lady Melania Trump, also involved in launching meme coins, for drawing attention to the crypto space and fostering broader cryptocurrency adoption.
Another high-profile case involved the Squid Game Token (SQUID) in 2021. Marketed as a play-to-earn token inspired by the popular Netflix series, it saw a rapid price increase from a few cents to over $2,800 within days. However, developers abruptly withdrew all liquidity, causing the price to crash to nearly zero. Because the creators remained anonymous, they were never identified, making it one of the most infamous anonymous pump and dump scams in crypto history.
Cryptoasset Price Pump and Dump Schemes: How to Avoid Them?
To protect yourself from cryptoasset price pump and dump schemes, it is essential to take certain precautions:
- Conduct thorough research before investing.
- Be cautious of assets experiencing sudden hype.
- Avoid projects with anonymous teams or unclear fundamentals.
- Watch for unnatural price spikes and high-volume surges to differentiate organic movements from artificial ones.
Bottom Line
Understanding what is pump and dump is crucial for navigating the crypto space safely. Recognizing price behavior that matches pump and dump scam patterns can help prevent financial losses. When investing in a new project, traders should always remain vigilant against pump and dump schemes and other potential risks.
