How risky is it to participate in token pumps?

At the end of December, the value of the Santa Floki token rose by 4000% after the head of Tesla and SpaceX, Elon Musk, posted a photo of his puppy named Floki on Twitter. This is not uncommon, in November, after the billionaire’s tweet, three “meme” tokens went up in price at once: the price of Viking Swap rose by 800%, VikingChain by 329%, Space Vikings by 150%.

Such dynamics is demonstrated not only by “meme” coins, writes RBC Crypto. In December, the value of the Voxies token instantly rose by 3350% after listing on the Binance crypto exchange. The project held a token sale on the Binance Launchpad site, 120.5 thousand users took part in it. And the price of the Bread token increased by 500% overnight. This happened after the Breadwallet company, which develops the wallet of the same name, announced the purchase of the Coinbase crypto exchange.

 

Why do pumps happen?

Most often, “pumps”, that is, a sharp upward price momentum within one or two trading sessions in the cryptocurrency market, occur for two reasons, a leading analyst at 8848 Invest.

The first and fairly common reason is the existence of a fundamental basis for a sharp increase. In the period of 2015-2017, just a mention of the listing of a cryptocurrency or token on a new exchange was enough for traders to abruptly start buying the asset, as a result of which a “pump” occurred, the expert recalled.

Currently, pumps are quite often due to the statements of influencers, for example, in the case of Elon Mask tweets regarding meme cryptocurrencies, but there are also more obvious situations: most often, a pump follows the news that another important milestone has been reached in crypto project roadmap, or on the news of a major partnership with major business players.

“Fundamental data and news create the basis for a sharp increase, I recommend keeping abreast of the development of projects and following promising partnerships and announcements of development teams in order to be able to participate in the “pump” in advance, and not at the time of the price increase,” recommended Pershikov.

The second reason for “pumps” is the intentional overclocking of assets by project teams or the community. In the second case, it is no secret that in closed channels in messengers and social networks, groups of people are formed who are interested in a sharp increase in prices, who can disperse the price of illiquid crypto assets with large purchases, especially on small crypto exchanges, the analyst explained.

You need to understand that only their organizers benefit from the so-called “PAMP groups” – they have time to buy and place sell orders shortly before the announcement of the purchase object to the rest of the group.

The most popular platforms for really significant groups are Reddit and Discord, exclusively in English. The most striking and largest example is WallStreetBets, part of their community is interested in cryptocurrencies. Local Russian-language publics and Telegram groups are rarely able to organize any kind of large-scale action.

As for the intentional “pump” of the price by the project teams, this practice has become less popular in recent years, but it still occurs, and most often it is not done for good purposes, Pershikov believes. He emphasized that by raising the price of your token, you can not only create a stir around it, but also sell the amount of cryptocurrency that the team has left at prices that are more favorable than market ones. Accordingly, the goal in this case is to enter the cash on participants who succumbed to a sharp increase in prices, the expert explained. In some cases, the “pump” is followed by an exit-scam.

More often than others, tokens that have only recently appeared on large centralized exchanges are exposed to pumps. According to him, even without taking into account the explosive growth at the time of listing, there are more opportunities for manipulation of “young” currency pairs, in which the supply is still relatively limited.

 

Is it possible to make money on pumps?

Even if you understand the “Pump&Dump” implementation scheme, it is not so easy to make money on these rate jumps – most often they are detected by an average trader already in the process of “pumping up” and it is highly likely that you can lose money if you do not have time to take profit very quickly, sometimes they pass before the trend changes. minutes or even seconds. He called it a more interesting strategy to open a short position at the supposed peak of the price.

“But we do not recommend shorting very large projects like Ethereum or Binance Coin. Even if an obvious manipulation is visible on their chart, there are frequent cases of price fixing at the level of such a local maximum with a continuation of the upward trend. And in general, you have to be very careful with short positions in a growing market,” warned a senior analyst at Bestchange.ru.

Trying to get into the pump on your own is a very risky strategy, almost impossible, director of the Alfacash cryptocurrency exchange service. He explained that when the “pump” became

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