Depending on how long you have been interested in the world of cryptocurrencies you may well have heard the term "pump and dump" banded about a fair bit, but what does it mean? What are pump and dump groups? Should you join one of the ever so many 'premium' telegram channels?
Let me answer those questions for you: It means a way of manipulating the market; The groups are swathes of large stake holders, banding together to essentially rip off the ignorant; And no, you should never pay to join one of the 'premium' groups. Here's why.
As briefly mentioned above, the term pump and dump essentially means manipulate the market so that a specific group of crypto currency holders can make a quick profit and essentially leave everyone else high and dry.
What happens is a group of 'whales' (people who own a substantial enough holding to control a give market's price) set a load of buy and sell orders, essentially buying from themselves, to drive the price of a market up and gain the interest of those who do not want to miss the opportunity of buying into the 'next big thing'.
Once the group has met a target they set themselves (usually an abnormally high price) they literally 'dump' all their holdings in the chosen market. This has the means for people to basically make as much money as they dictate necessary and then send the price of the market crashing back down to the floor.
Obviously this seems like a way of making a quick buck so many people, especially those who are new to crypto, get blinded by the numbers and join the bandwagon hoping to make a quick and substantial amount of money and then buy back in when the currency hits the floor (depending on the project). This doesn't always work out.
The problem with joining the groups is that you have no way of knowing if they are going to stick to their plan or are just literally using the ignorance of new members to assist with driving up the price so that more experienced members can dump their holding prior to the target which they publicly disclose.
Think of the pump and dump as a staircase, at each step you're buying more and more at an exponentially higher value and hoping to sell when you reach the top of the stairway but, when you're halfway up, someone suddenly cuts the top level down to below where you are currently standing. This leaves you in a position where you have to cut your losses and sell for a substantial loss or hold your stake in the hope that it's value raises to at least where you bought it, although this is very unlikely to ever happen.
Take the most recent case of "E-Coin". Yesterday the coin went up over 2,000% in value, reaching a high of just under $300 USD. Today? The value has plummeted to just under $4 USD. Yes, that's right. FOUR DOLLARS!
Now, people will have seen the meteoric rise in value and thought that it was the next Bitcoin and then bought at the top of the staircase, hoping for it to rise even more. What happened? The stairs they were standing on literally got ripped away from under their feet and they now have a coin which is valued at under $4 USD, and they paid $200 USD for it.
This type of scenario is what is harming the entire crypto-verse. This type of market manipulation is what will hamper the mass adoption of the crypto currency industry and blockchain technology. Further to that, this type of market manipulation is exactly what cryptocurrency is meant to prevent.
The whole point of cryptocurrency is to redistribute the wealth in the world and yet we have groups of people literally controlling who can benefit from the wealth in the market, just like the actual stock market. If we want mass adoption, if we want a chance to actually change the world, we need to unify. We need to stop looking for a quick buck from groups of whales and invest wisely. Not sure what a currency does? Don't invest in it!
So there you have it, an explanation of what pump and dump groups are and why you should avoid them. Yes, you could make a quick buck from joining one but, the more likely event, you will just be left with a load of coins which you paid well over their value to acquire. Think smart people. Think long term.