Scholars Analyze The Impact of Pump And Dump
Scholars from the US have analyzed the scheme in a research paper, highlighting effects and how it is carried out.
Pump And Dump Schemes Labelled Bad
Three university professors from the US have, no surprise, labelled crypto schemers who support the pump and dump model as bad. The scholars focused on prominent crypto enthusiasts.
The scholars, Tao Li, Donghwa Shin and Baolian Wang made their case in a new paper they are currently working on. They issued evidence highlighting that price manipulation was a bad thing for the liquidity of cryptos.
Many people have shown interest in YoBit exchange that has vowed to pump funds into random coins as a way of increasing the price. It is key to note that this model of inflating prices did not start with cryptocurrencies. The scheme will not stay around forever either. If investors can make their exchange decisions independently and do their due dilligence, then such schemes will not survive.
Pumping occurs when investors get assets and create a hype around them later leading to a spike in prices. People might fall for this buying more assets with the hope it is a long-term trend. Additionally, psychological aspects, particularly emotional responses such as FOMO also play a role when humans believe that things might get better. The dump occurs when those with inside information sell out of the coin or coins in a coordinated manner thus cratering the price and leaving all the other suckers holding their head in their hands. However, all these schemes are hard to control since we do not have all the real facts.
Trading in high-risk assets aims at emerging at the top since traders know that assets can lose their value within a span of hours. It becomes hard to gauge in the modern world compared to traditional trading instruments. For the crypto sector, technologies and tokens can play a major role.
Pump and dump plots mainly depend on the hype cycle. However, this cycle is not needed for positive performance. Experts in these schemes can mislead the market using bots or trading algorithms. The time span of pump and dump schemes varies.
According to the scholars, in the crypto world, experts in this scheme operate in an organized manner. They form pump teams using platforms like Telegram. They deploy Telegram groups to discuss how the scheme can be a carried out. Through the group, moderators usually update the team of the next pump date.
The main thing that matters is having sufficient funds and have enough knowledge to manipulate the prices of targeted assets. The scholars noted that such schemes are often initiated at the launch of a token. They said that such schemes are usually initiated by creators of the token.