How Does the Crypto Pump and Dump Scheme Work?

The pump and dump scheme has been around for long. It involves artificially inflating the value of a worthless asset. This would typically involve a penny stock with a low market cap. Investors then sell it and profit from the price increase. While pump and dump schemes are illegal under securities law, they are still prevalent.

Crypto Pump and Dump Schemes

In a crypto pump and dump scheme, strategic marketing tactics are employed to create artificial hype around a worthless asset. These tactics may include misleading statements, false claims, endorsements, and social media posts. It also involves deceptive methods to convince investors that the asset is a hot buy and that they shouldn’t miss out on the opportunity.

Once the hype is generated, the price of the worthless asset starts to increase. This is due to investors buying shares of the stock. At this point, investors who are in on the pump and dump scheme start selling or “dumping” their shares of the overvalued asset.

How Does Pump and Dump Work?

Pump and dump groups operate in layers, with the highest profit going to the innermost members. The organizers, sometimes in collaboration with a few inner circle members, decide which coin or digital asset will be pumped. This information is then passed on to the paid outer participants and other group members.

The pump and dump group provides paid services to paid inner and outer circles. The information about the pump is disseminated to the outer rim and other group participants who have also paid for the service, albeit with a delay of 30 seconds or after the majority of the price increase, has already occurred.

Becoming part of the core inner layer of a pump and dump group is difficult and expensive. If you’re not an organizer, it’s challenging to be part of the core group. As a result, most new participants in these signal groups end up in the outer layer of the pump and dump scheme. Unfortunately, participants in the outer layer often end up losing money or not profiting as heavily as the core members.

The Inner Circle

The organizers and the inner paid circle benefit the most in pump and dump schemes. They often buy coins in advance, sometimes days before, to avoid leaving any traces. However, the pump and dump scheme success rates can vary due to various factors. This includes timing issues, glitches during the purchase, and technical difficulties. The scheme itself doesn’t take long to reach the outermost members, typically completing within minutes, although it may take a little longer in rare cases.

The Broadcasting Phase

During the broadcasting phase, the organizers alert the members of an upcoming pump. The frequency of pumps within the group can vary. The organizers pump some coins several times a week and others a few times a day.

A countdown is set to create awareness among users about the upcoming pump. The actual pump and dump occur on a selected exchange, often smaller ones with lower trading volumes that are easier to manipulate.

When the countdown begins, participants prepare to purchase the targeted coin. It’s important to have a stable internet connection and a fast computer to ensure timely execution. Even the inner paid members may have to wait in line with the outer circle participants if there are any technical glitches.

The Pump Phase

The organizers make their purchases after the targeted coin has been decided. This allows them to maximize their profits from the price spike. Once the organizers have made their purchase, the information about the coin is passed on to the paid members and then to the outer participants in the scheme. If other traders on the exchange (not part of the group) notice the pump, they will also buy the coin.

The Dump Phase

During the dump phase, the organizers sell or “dump” the coins they bought in advance to the outer circle participants who are still buying due to the pump. This quick selling of the coin brings the price back down to its initial or even lower value. As a result, those who purchased the token at a later stage of the pump incur heavy losses. In some cases, pumps can temporarily lift the coin’s price permanently or at least for a few days.


The pump and dump scheme is highly risky, especially for those not part of a group’s inner circle. Such practices harm the image of the cryptocurrency space in the long run. The lack of regulations in the cryptocurrency market enables these schemes to flourish.

Conducting detailed research on coins and understanding their purpose before investing is crucial. Doing so ensures investments in assets have the potential to last over the long run. If you jump into a scheme without knowing what it entails, you may end up losing money.