A few days ago when the crypto market was a sea of red, I was scrolling through the top 100 on coinmarketcap.com when I stumbled upon a high climbing coin I had not heard of before.
Now, I have only been in this space for several months, so it was no surprise I had not seen this coin before as there are so many, but the name is not what caught my attention. You see, as I was scrolling through, I was focusing on the "Change" tab which shows the percentage (up/down) of change for each coin or token within a 24 hour period.
This particular coin had a positive change of 2,156.20% while the others, above and below, were ranging from negative 5.70% (red) to positive 9.48% (green). Although the change was showing green, the percentage was a red flag to me.
After seeing that, I curiously clicked on this fast-moving, must have crypto which goes by the superhero name of E-coin. Superhero? Of course! It was the only coin that was successfully battling and surprisingly beating this bearish market we were in at the time. Not only was it beating the bear, but it was also roundhouse kicking it, with both feet, right in the baby maker.
Upon closer examination, it appeared E-coin (ECN) was less of a superhero and more of a manipulation, which meant, impulsive "when Lambo?" investors would be the lucky recipients of those kicks.
If some, most, or all of the other coins or tokens had similar rapid growth, then maybe 2,156.20% change would not be so out of place, but since nothing, anywhere, was remotely close to that, it's what the F.B.I. would call, a clue.
-Screen shot from Coinmarketcap.com
I put on my snazziest Columbo tie and dug in a little deeper. Looking at E-coins (ECN) history charts, I noticed it had never seen movement like this before. At the time, E-coin (ECN) was trading for $127.96 USD per coin, with an all-time high (ATH) of approximately $23.12 USD. Throughout its history, it has had several spikes, but for the most part, it was reasonably level. Shortly before jumping to 31 in the top 100, the price was hovering around $6.00 USD per coin.
-Screen shots from Coinmarketcap.com
To me, this signaled a "pump and dump." If you are not familiar with that term, basically it means, a group (typically organized) using a specified marketplace/exchange invests heavily into a particular coin or token (can also apply to stocks) at a lower price with the intention to sell everything at a higher price. This sudden, large movement drives the price up, causing that Cryptocurrency to gain attention and attracting more investors (most unaware of the sell plan) thus pumping it higher. Suddenly, massive amounts of coins or tokens are sold off, causing that crypto to fall or dump drastically. Usually, this sell-off occurs once that crypto reaches a predetermined worth, on a predetermined date/time, or there is a sell command internally given to those in the "know." Those who are outside of the "know" who bought on the high are now left holding bags of poo and getting roundhouse kicked in the adult area.
There are three types of investors involved in a "pump and dump."
1: Those initiating and controlling it (in the know)
-little to no risk as long as they sell when it is time
2: Those who see it, identify it and want in on the action (outside of the know)
-Medium risk, but requires said investor to actively watch the market in real time and wait for visible signs of sell-off. If not and it dumps before said investor can sell it, they can take heavy losses
3: Those who do not recognize it, but invest because they see huge gains (outside of the know)
-High risk and heavy losses are almost always guaranteed
On top of the apparent "pump and dump," I noticed another odd thing. The E-coin website was not loading, which might be because of a high volume of traffic, the link was broken, or the website was nonexistent.
Given the information and multiple red flags, I knew this was not an investment opportunity for me. I'm sure there were people who saw this and FOMO'ed (fear of missing out) in and bought high.
Once the dust finally began to settle, E-coin was nestled in the 348th spot and worth $3.53 USD per coin. A difference of $124.43 USD in less than eight hours. It was the only red in a sea of green. Several hours after that, it continued to drop in value and rank.
-Screen shot from Coinmarketcap.com
Looking at the coin or token history charts, you can see when "pump and dumps" took place. This was the first time I had seen one on the pump. When I identified it, I decided to take pictures, follow the action and stick around for the aftermath of the dump. I figured this might be beneficial information to help prevent people from becoming the third type of investor during an active "pump and dump."
The ability to identify these types of market manipulation can mean the difference between a profitable investment or a loss of investment. It is essential to understand, just because a coin or token is doing well, does not mean is it a victim of a "pump and dump." It is up to you to identify any positive or negative indicators and determine if the growth is natural or unnatural. Also, "pump and dumps" might not follow the same type of inflated and aggressive rise up as demonstrated here with E-coin, it could be more subtle with a longer gestation period before sell off. It is also worth noting, "pump and dumps" are not just specific to a coin or token. If enough large investors get together, they can influence the market, causing a potential "pump and dump" on a massive scale.
Disclaimer: I am not a financial advisor, nor am I giving suggestions, recommendation, guidance, advice, or tips. I am simply stating my opinion and giving my observations of the market, Cryptocurrency, or other related topics. If you decide to act on or follow any of the information provided (past, present, or in the future) you are doing so on your own free will and not on my recommendation.
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Baker and Ashlie are the owners of Bourn Adventure and together they author the majority of the articles and content found here.