Understanding Pump and Dump in Crypto
The cryptocurrency world is known for its rollercoaster-like volatility, cult-like communities, and fast-moving trends. Amid this whirlwind, a term often whispered with caution—or bragged about in certain circles—is “pump and dump.” While the phrase may sound like gym lingo or trash talk, it describes a market manipulation scheme that has cost unsuspecting investors millions. In the fast-paced and often unregulated world of crypto, understanding what a pump and dump is can save newcomers from financial heartbreak.
What Is a Pump and Dump in Crypto?
A pump and dump is a scheme where the price of a low-market-cap cryptocurrency (often referred to as an "altcoin" or even a "shitcoin") is artificially inflated—or "pumped"—through misleading or exaggerated claims, only to be "dumped" by early investors or orchestrators who sell off their holdings at the peak. Once the dump occurs, the price plummets, leaving the majority of investors—often newcomers—holding the bag. In other words, you buy so that the insiders can sell.
This kind of manipulation typically targets coins that are not well-known, have low trading volume, or lack liquidity, making them easier to control. The smaller the market cap, the less money is needed to significantly move the price, making it the perfect playground for manipulators.
How a Typical Pump and Dump Works
Planning the Pump
A group of insiders or coordinators will choose a coin—usually obscure or inactive—and accumulate a large position over time without drawing attention.Spreading the Word
Coordinated campaigns begin, often via social media platforms like Twitter, Telegram, Discord, Reddit, or YouTube. These campaigns may use fake news, hype, influencer endorsements, or even AI-generated content to build excitement.Triggering FOMO
As the price begins to rise due to initial buys and viral hype, more people begin to notice. This is where the term FOMO (Fear of Missing Out) comes into play. People, especially newcomers, jump in hoping to ride the wave upward.The Dump
Once the price reaches a high enough level, the original holders begin selling off their shares rapidly, triggering a chain reaction of panic selling. Prices crash almost instantly.Aftermath
The coin is often abandoned, with most late buyers suffering massive losses. Meanwhile, the orchestrators walk away with profits.
Why Are Newcomers the Most Vulnerable?
The decentralized and often opaque nature of crypto markets makes it difficult for newcomers to differentiate between legitimate investment opportunities and hype-driven schemes. Here's why newbies are frequently the victims:
Lack of Experience: New investors often lack the technical and market knowledge to recognize warning signs.
Influencer Hype: They are more likely to trust influencers or community sentiment without verifying facts.
Emotional Investing: Psychological triggers like FOMO, greed, and peer pressure cloud judgment.
Speed of the Market: Crypto moves quickly, giving little time for thoughtful decision-making.
To a beginner, seeing a coin jump 300% in a few hours feels like catching lightning in a bottle. But in many cases, they’re entering a trap laid by more experienced players.
The Role of "FOMO"
FOMO, or the Fear of Missing Out, is a powerful emotional driver in crypto investing. When prices start skyrocketing and everyone on social media seems to be “going to the moon,” investors worry that if they don’t act fast, they’ll miss out on massive gains.
In pump and dump schemes, FOMO is deliberately weaponized. Hype content is designed to create a sense of urgency—phrases like “get in now before it’s too late,” “next 100x gem,” or “buy before the breakout” are red flags signaling manipulation.
Once FOMO takes hold, rationality goes out the window. Investors stop asking why a coin is pumping and start worrying about missing the rocket. Unfortunately, by the time most of the FOMO crowd buys in, the dump is just around the corner.
What Does “HODL” Have to Do with It?
HODL, a misspelling of “hold,” became a rallying cry in the crypto community in 2013. It represents the belief in long-term investment over short-term trading, especially during downturns. Originally meant to encourage people to hold onto major cryptocurrencies like Bitcoin during bear markets, “HODL” has since taken on meme status.
In the context of pump and dumps, HODLing can backfire. Newcomers might buy into a hyped token, then as prices drop, reassure themselves with mantras like “just HODL”—believing the price will bounce back. But in most pump and dump schemes, the token doesn’t recover. It gets abandoned. The team disappears. The community evaporates. The value goes to zero, and the person HODLing is left with a worthless asset.
Thus, while HODLing is a valid strategy for established coins with long-term potential, applying it blindly to speculative assets can be disastrous.
Diamond Hands: Strength or Stubbornness?
Diamond Hands is another meme term that signals an unwavering commitment to holding an asset regardless of market volatility. It’s often used with pride, to show that someone didn’t sell even during extreme dips. The opposite is Paper Hands, a term for someone who sells at the first sign of trouble.
In theory, Diamond Hands reflects confidence and resilience. In practice—especially in pump-and-dump scenarios—it can mean refusing to cut losses on a dying coin. Manipulators exploit this by appealing to the ego. They’ll frame selling as cowardice and holding as bravery, even as the coin collapses.
This groupthink mentality is dangerous. When an entire community is convinced that only “paper hands” would sell, individuals become emotionally trapped, watching their investments dwindle while clinging to false hope.
Real-World Examples
Several high-profile pump-and-dump schemes have rocked the crypto world:
Bitconnect (2017-2018): Though technically a Ponzi scheme rather than a pure pump and dump, Bitconnect combined hype, influencer marketing, and community pressure to inflate its price before a spectacular collapse.
SafeMoon (2021): A hyper-deflationary token that pumped through aggressive marketing and influencer backing, only to leave many holders deep in the red.
Squid Game Token (2021): Capitalizing on the popularity of the Netflix show, this token surged over 75,000% before vanishing. It was impossible to sell due to built-in restrictions, and the creators made off with the funds.
How to Protect Yourself
If you’re new to crypto, here are a few guidelines to avoid becoming a victim of pump and dump schemes:
Do Your Own Research (DYOR): Always read the whitepaper, check the team’s credentials, and explore the project’s utility.
Avoid FOMO: If a token is trending only because of hype and not because of underlying fundamentals, stay cautious.
Beware of Anonymous Teams: If the people behind a project are untraceable, that’s a major red flag.
Don’t Trust Influencers Blindly: Just because someone has a large following doesn’t mean they have your best interest at heart.
Check Liquidity and Volume: Low liquidity makes it easier to manipulate prices and harder to exit your position.
Diversify Your Portfolio: Never go all-in on a single, unproven asset.
Watch for Exit Scams: If a project suddenly disables selling, removes liquidity, or deletes its social channels—run.
Final Thoughts
Pump and dump schemes are an unfortunate reality in the world of crypto, especially in its wilder, unregulated corners. While some traders knowingly participate in these schemes trying to time the market, the majority of victims are newcomers lured in by hype and emotional triggers like FOMO. Misunderstood strategies like HODLing and slogans like “Diamond Hands” can further entrench people in losing positions.
To navigate crypto safely, education is your best weapon. Understanding the psychological tactics used in manipulation—and the slang that often camouflages it—can help you avoid being part of someone else’s exit strategy.
In crypto, knowledge really is power. Don’t let hype be your compass. Do your own research, stay grounded, and remember: if it sounds too good to be true, it probably is.