Image from Freepik

Bitcoin news is getting more and more widespread everyday. People who knew nothing about cryptocurrency in early 2019 are also posting comments on crypto-related articles, and getting inclined towards trading in crypto. Crypto news is getting common on social media, and millennials are getting excited about this newfound means of ‘peer-to-peer’ payments.

However, this growing trend in the crypto industry has its own drawbacks. Many people end up investing in bitcoin, without having a thorough understanding of its underlying structure, or the value of this digital asset. The scammers find it easy to take advantage of this, and make the naïve people into victims of their bitcoin scams.

Along with the new ways these scammers are coming up to fraud people and steal their money through crypto trade, an old scam also emerged time and again throughout 2019, which takes advantage of the millennial’s desire to get rich quick.

Perhaps with the next bitcoin halving event coming up in mid 2020, it has become easier for these scammers to fool the naïve millennials nowadays, who are looking to make a bunch of money by investing in bitcoin now, and expecting its price to shoot up in few months time. That’s probably the reason this old scam has resurfaced.

I am talking about the bitcoin ‘pump and dump’ scam.

What is a ‘pump and dump’?

Pump and dump schemes have been around since the stock market has. The scheme plays something like this: a group of fraudulent investors (or ‘scam artists’) group together to buy a set of penny stocks. This causes the price of the stocks to go up. Then they go around convincing outsiders to buy the same stocks by showing them the increasing price trend. They make big ‘get-rich-quick’ claims to get more and more investors to buy-in.

Once the stocks hit a predetermined price, the scammers suddenly sell off all their shares in these stocks, causing the stock price to tumble. The outside investors end up losing almost all their invested money, while the scammers pocket the price difference when the stock price was shooting up.

How does the bitcoin pump and dump scam play?

The new technology makes it even easier for the scammers to play the pump and dump scheme. Investors who get convinced by such ‘get-rich-quick’ schemes fall for the trick very fast, and they don’t even realize what hit them after they lose their money. People who are new in the crypto trade are particularly the easiest catch, as this is something they are not at all prepared for.

The scam artists post news about bitcoin prices on various social media platforms. Some of them also use fake celebrity endorsements to make the news sound more authentic. Others start crypto-related publication sites, and claim to be reporting cryptocurrency news only, but are actually stealing money by trading crypto and playing the pump and dump scheme from the back door.

They act as brokers and convince people to invest in bitcoin with them. As soon as the price goes up enough for them to dump it, they burn off their bitcoins and keep the difference in their pockets. If the victimized investors ask them questions, they start giving lectures on how unpredictable the crypto market is. If someone wants to sell off their bitcoin to them before the price dumps, they convince them to hold on to it by giving them high hopes.

How do we spot a bitcoin pump and dump scam?

Due to the digital world we live in these days, it’s very difficult to tell the real news from the fake news. But it is important to be able to spot these scams, because otherwise these can cause big financial ruins. The best that we can do is to keep ourselves informed. By trying to understand the underlying mechanisms of how crypto trade works, we can ensure we do not become easy target for these scam artists.

Following are few ways to spot the scam and avoid getting tricked into it.

It is highly recommended to not invest on a single tip. Investing on a single tip means getting convinced to invest your money by merely hearing about a scheme or something from a single person (such as a single broker), or reading about it on a single social media post or page.

You must always do your own due diligence, and enhance your knowledge through multiple means, before deciding to invest in any company or currency. When you act on a single tip, especially if it comes through a (potentially fake) website or social media page, you are increasing your chances to get burned.

If it sounds too good to be true, it probably is. There a lot of websites these days that are over-promoting bitcoin and cryptocurrency in general. They keep posting on how fantastic the crypto world is, making it sound like there are no dangers or risks in it. They often also promote schemes that sound too good to be true.

The truth is, people who are actually making money with crypto trading use the grow-over-time approach. Anybody or any site offering ‘get-rich-quick’ schemes has something shady about them. People who tell you that you can earn big amounts of money in a very short period of time are likely there to manipulate you and steal your money.

Run from people who claim that there is no risk. You might come across some unscrupulous investment or financial advisors who would tell you that a certain kind of investment is absolutely risk-free. I am here to break the bubble and tell you that that’s not true.

There is a risk of losing money involved in all kinds of investments. If you can afford to lose the amount that you choose to invest, you can consider making the investment. But if somebody is telling you that you do not need to worry because there is no chance of losing money with their scheme, then you need to run the other way right away.

Beware of companies or websites that turn off their public reviews. Scammers use digital media to spread the word about their services, whether they are acting as a publication, a media company, a broker or financial advisor. This is because most of them are scared to come out into the open and face their targets in person.

But they forget that they are easily traceable on the Internet, especially when they have a brand, and claim to be running a crypto news portal in the brand’s name. Their victims can easily find their social media pages and write a negative review to reveal the truth about them, which is available for general public to read, unless they turn it off.

When a customer or victim posts a review on somebody’s Facebook page, the only way to hide it from public is to switch off all public reviews on that Facebook account. There is no way to delete individual reviews from a Facebook page, the way we can delete individual comments on Facebook posts. Thus if a company or a brand has their Facebook page reviews turned off, that definitely sends a red signal to anyone who is interested to buy from or partner/trade with that brand.

Inspect the domain of suspicious websites. Scammers often purchase old domains at a higher price to start a website, in an attempt to get high domain authority faster. If a company or brand’s website domain is 6 years old, for instance, but their company just started operations less than a year ago, that’s again a red flag to consider.

There is not much reason for someone to purchase an old domain at a higher than usual price, unless they plan to use it for something shady, and really need an old domain to cover something up.

Don’t join groups or companies that are doing pump and dump trades. If a shady company approaches you for a job, it is best to avoid joining it. Sooner or later, they will trick you into becoming part of their fraudulent schemes, in subtle and indirect ways.

How to know if a company dealing with crypto is shady? Well for starters, they will never reveal their source of income to you. If you are a marketing person in particular, it is important for you to know the demographics of the company’s existing customers, in order for you to bring in more business for the firm. But if the owners of the company are crypto scammers, they will tell you that they don’t have any customers yet, and that they only plan to generate revenue by running ads on their website.

Manipulating markets is an illegal activity, and you can get tricked into doing so without even knowing it if you join a crypto-related scam company. If the company gets caught, you as an employee might also have to face some legal consequences.

Have you already been scammed?

If you have already been a victim of a bitcoin pump and dump scam, read my article on tracing cryptocurrency scammers after their exit.