Crypto Pump-and-Dump Scheme: How to Spot and Avoid Getting Scammed

The world of cryptocurrency is both intriguing and unpredictable. While traders and investors try to make profits in the hectic ecosystem, it is these ‘quick gains’ that make them tumble. Apart from fraudsters and phishing attacks, there are several types of scams, in which, pump and dump scheme is the most predominant. A common scam method, the pump and dump, is also witnessed in traditional stock markets. In this article, gain deep insights into its workings and functionalities, and also get to know the red flags that can help you from becoming a victim. 

The Concept of Pump and Dump Scam

Just as its name sounds, the method, in short, boosts the asset (pump), and later, when it has reached a significant level, the assets are dropped (dumped), causing a steep price crash and investors with heavy losses. This method is mostly used for tokens that are of low volume, low liquidity, and basically a microcap token that hasn’t gained much attention since its inception. Although illegal in regulated financial markets, these schemes thrive in the crypto market due to a lack of oversight, anonymous transactions, and the rapid spread of information through social media platforms.

How Does a Crypto Pump-and-Dump Scam Work?

This scam primarily goes by a pattern, wherein a low-laying coin is chosen and accumulated, and when the time is right, the perpetrators strike. The scam takes place in four stages, and below is a brief description of each stage.

Target Selection

Scammers often target tokens that are least used, especially with low liquidity and small market caps. These coins are either recently launched or forgotten after their inception. Due to low activity, even a small buy could move their price, making them an ideal choice for manipulation.

Accumulation Phase

Once the token is selected, the perpetrators quietly accumulate the token, and since its trading volume is low, the gradual accumulation goes unnoticed. This stealth phase is crucial, and at this point, there is no public promotion or hype to avoid drawing attention. 

Hype and Promotion

After loading the tokens, promotions are done via social media platforms like Reddit, X, Telegram, paid collaborators, etc. Another promotional method is the FOMO messages. These Fear Of Missing Out messages convey that either the coin is about to ‘moon’, or is being backed by a celebrity or a big project, luring investors.

The Pump

As the hype builds, early buyers start piling in, pushing the price upward. This sudden surge catches the attention of traders who rely on charts and price momentum. Seeing green candles, they assume it’s a genuine breakout. More people rush in, driven by FOMO, unaware that the price is being artificially inflated behind the scenes.

The Dump

Once the price hits a peak, the scammers begin dumping their tokens all at once. This sudden wave of selling crashes the price almost instantly. Panic sets in, but by then it’s too late. Retail investors who bought at the top watch their holdings collapse in value, often becoming worthless within minutes, while the manipulators exit with profits.

Pointers to Watch Before You Buy

Sudden Hype 

If a coin is suddenly trending and everyone’s calling it the next big thing—but there’s no news, no updates, and no product—you should be suspicious. Price should follow progress. Before jumping in, check if there’s any actual development or announcement. If it’s just hype on social media, you’re likely looking at a pump setup.

Disguised Identity

Always check who created the token. If you can’t find a team page, LinkedIn profiles, or even names, that’s a red flag. Scammers love to hide. Legitimate projects are proud of their builders. If the people behind a project are ‘invisible’, there’s a reason—they are covering up their tracks. 

Low Trading Volume

Be careful with coins that barely trade. If only a few thousand dollars are moving each day, it means the token has low liquidity. Even if you buy in, you might not be able to sell without crashing the price. Scammers target these coins because they’re easy to manipulate.

‘High’ Promises

Anytime someone says a token will “100x” or “go to the moon,” take a step back. That’s classic bait. Real projects don’t make wild price promises—they focus on solving problems or building tech. When the talk is all about price and nothing about the product, it’s usually a setup.

Identical messages

One of the highlights of this scam is its messages. Almost all its hype driven messages contain the same content across platforms. This implies that they are likely coordinated, whereas real excitement is messy and varied. Avoid coins being pushed by bots or anonymous users who won’t explain the necessity of the tokens.

FOMO Fears

Despite the red flags, even the seasoned investor falls prey to the schemes, and this has raised psychological and behavioural concerns. One of the main reasons for the scam to prevail is FOMO. Investors get into a frenzy when they ‘realize’ that they are missing out on a ‘good’ opportunity, and despite the warnings, they get looped into the scam. 

Further, the impulse to buy is high at this stage, when they see others buying it. Following the impulse, greed gets in, and without further delay, investors buy the low volume token, which is set to ‘moon’. A major drawback with investors is that they don’t take the time to do research. When they see that a majority of members have inclined towards a coin, considering its weightage from a top project or a celebrity, they buy it, irrespective of not knowing its tokenomics or the data of the project. 

Legal and Regulatory Implications

While the crypto space is decentralized and often lacks strict oversight, pump-and-dump schemes are illegal in many countries. Regulatory bodies like the U.S. SEC, CFTC, and the UK’s FCA have begun actively pursuing cases, especially when influencers or public figures are involved in misleading promotions. However, enforcement remains difficult. 

The global nature of crypto, combined with anonymous developers and rapid token launches, creates loopholes that scammers exploit. Many of these perpetrators operate across jurisdictions, making it hard to track them down or prosecute them effectively. As a result, while regulators are stepping up efforts, many schemes still go unpunished.

Real-World Examples

• Verge (XVG): In 2018, a group coordinated a pump-and-dump for Verge using a Telegram group with over 100,000 members. The coin saw a sharp price spike, followed by an equally steep decline.
• Squid Game Token (SQUID): Riding the popularity of the Netflix show, the SQUID token surged from a few dollars to over $2,800 in a matter of days. Soon after, the developers abandoned the project, and the price crashed to nearly zero.
• SafeMoon-style tokens: Many meme and copycat tokens launched with huge promotions, only for their creators to dump liquidity and disappear.

Final Thoughts

Crypto’s fast-paced nature and the lure of quick profits can be tempting, but that’s exactly what makes it risky. Pump-and-dump schemes thrive on hype, FOMO, and inexperience. It’s easy to get swept up, especially when prices are surging. But in this space, the real edge comes from staying calm, doing your research, and thinking long-term. In crypto, being informed and strategic is better than being early and impulsive.