What is price manipulation in cryptocurrency and how does it work?

The concepts of pump and dump are market malpractices that involve intentional price manipulation of cryptoassets (). This technique involves deliberately spreading false information to inflate asset values, and then rapidly selling off to make a profit, causing losses for those who invested later. "Pump" means a rise in price, while "dump" refers to a large sell-off.

This process begins with the accumulation of a large quantity of specific cryptoassets. Next, false information is spread to create excitement in the market, and as a result, the price rises rapidly, prompting investors to rush to buy. However, once a high price is reached, the operator starts to sell the assets, triggering a sharp decline in price, leading to significant losses for investors who entered later.

This method first demonstrates its abnormality by showing that an unreasonable price surge occurs in a short period without justification. Additionally, the trading volume of cryptoassets rapidly increases for speculative purposes, and news or rumors exaggerating the advantages spread quickly.

The cryptocurrency market is still immature, and due to loose regulations, price manipulation can be easily carried out. Additionally, the high level of anonymity in transactions makes it difficult to identify perpetrators, which exacerbates this phenomenon. The high volatility of the market also contributes to the rapid price changes over short periods.

For example, in 2017, small coins and altcoins were targeted, using misinformation to hype ICO excitement and manipulate prices. After that, they rapidly sold off assets, causing the market to collapse.

This operation traps many novice investors and leads to significant economic losses. Furthermore, it undermines trust in the overall market, resulting in deterring investors. Unhealthy volatility is also a factor that worsens the market's image.

First, it is important to verify reliable sources of information before taking it at face value. It is also necessary to carefully observe the patterns of price fluctuations and check whether the rationale is sustainable. It is crucial to conduct careful analysis without being trapped by FOMO ("fear of missing out").