Pump-And-Dump Scheme In Crypto

Crypto market is far less researched and accepted than a fiat market due to its relatively short history. This makes a solid ground for those who seek to become scammers and profit from investors' emotions; here’s where schemes like pump-and-dump come into play. Today, we aim to find out how this fraud works so you can stay vigilant and avoid it.

How Does Pump-and-Dump Work?

In crypto, a pump-and-dump is a type of dishonest market manipulation in which a group of people purposefully raises the price of a cryptocurrency and then sells off their holdings at a higher cost. Those schemes typically unfold in four distinct phases: pre-launch, launch, pump, and dump.

1. Pre-launch phase: the orchestrators create excitement around a token that is often of little real value. They use tactics such as allowlists (exclusive access lists) and pre-sales to attract early participants and build a base of potential buyers. They also typically build up the FOMO feeling via platforms like X (formerly Twitter), Discord, and Telegram. The goal is to generate hype and interest before the token is widely available.

2. Launch phase: promoters are employed to spread positive and sometimes misleading information about the token. Their job is to draw in more investors by creating a buzz and presenting the project as a promising opportunity. This helps in expanding the pool of buyers and increasing initial trading activity.

3. Pump phase: once the hype reaches a critical mass, the coordinated buying by early participants and newly attracted investors drives the token's price sharply upward. As more people join in hoping for quick profits, the rapid price increase encourages further buying, which can temporarily push the token's value well above its actual worth.

4. Dump phase: the orchestrators—who have been holding large quantities of the token—sell them off at the artificially inflated price. This massive sell-off floods the market with tokens, causing the supply to far exceed demand. The sudden imbalance results in a dramatic price drop, leaving late investors with significant losses as the token’s value plummets.

This scheme exploits investor enthusiasm and the lack of conventional regulation in the crypto market, making it a high-risk and unethical strategy for manipulating prices for personal gain.

Biggest Pump-And-Dump Cases

Pump-and-dump scams have left a legendary imprint on the crypto world. Over the years, numerous high-profile incidents have highlighted just how disruptive and lucrative for the orchestrators these schemes can be. Below we’ve gathered the most notable recent cases of pump-and-dump schemes in action.

EthereumMax Case

EthereumMax (often abbreviated as EMAX) is an ERC-20 which began as a classic pump-and-dump scheme. Key players, including paid promoters and crypto marketers, hyped the token through social media and other channels, driving its price up rapidly. Meanwhile, insiders accumulated large holdings and strategically manipulated liquidity—ensuring that even small buy orders could cause dramatic price spikes. Once the cost of the coin reached a peak fueled by the hype, these orchestrators began offloading their tokens through secret wallets, effectively "dumping" them on the market. This massive sell-off overwhelmed demand, causing the token’s value to go way down and leaving many late investors with significant losses.

Squid Case

Squid coin was a digital token inspired by the popular Netflix series Squid Game and marketed as a "play-to-earn" cryptocurrency. It experienced a massive surge in value—rising from just 1 cent to over $2,856 in less than a week—before its value plummeted by 99.99%. The scam unfolded as a classic "rug pull": once enough money was raised, the developers halted trading and absconded with an estimated $3.38 million. Buyers were later unable to resell their tokens, and the project's website and social media accounts disappeared, confirming that the token was nothing more than a fraudulent scheme.

Javier Miley Case

Argentine President Javier Miley found himself at the center of a meme coin scandal when the LIBRA token, marketed as a "play-to-earn" cryptocurrency to support Argentine businesses, experienced a classic pump-and-dump. In his post on “X”, Miley enthusiastically endorsed LIBRA, which helped ignite a buying frenzy that propelled the token's market capitalization to $4.5 billion. However, the real orchestrators behind it were a group of insiders and scam promoters who had pre-arranged positions in the token. They exploited the surge by strategically withdrawing liquidity and selling their tokens, leading to a 95% collapse in the token’s value. This rug pull, which resulted in insiders pocketing over $100 million, has since attracted regulatory scrutiny and class action lawsuits.

Is Pump-and-Dump Scheme Legal?

Pump-and-dump schemes are generally considered illegal in most regulated markets due to their inherently manipulative nature. In the United States, they are considered market manipulation and are prohibited by the laws enforced by the Securities and Exchange Commission (SEC). Within the European Union, pump-and-dump schemes are illegal under the Market Abuse Regulation (MAR). In both jurisdictions, those found guilty of such schemes suffer severe penalties, including fines, disgorgement of profits, and even criminal charges.

Did we answer all your questions? What do you think of pump-and-dump schemes? Have you ever encountered this? Let’s discuss it in the comments below!