Definition
A pump and dump combines an artificial price surge with selling by participants who positioned themselves earlier. Promoters may use misleading announcements, exaggerated claims, or coordinated publicity to create the impression of strong demand. The subsequent selling can leave later buyers holding an asset at a sharply reduced price.
How It Works
The scheme depends on a gap between the advertised opportunity and the organizers’ incentives. Thin liquidity can amplify the price impact of both buying and selling. Apparent activity or rapid gains may draw additional buyers, while those promoting the asset dispose of their holdings into that demand.
Key Considerations
A sudden rise followed by a fall does not alone prove manipulation; genuine news and normal volatility can produce similar charts. Evidence about deceptive promotion, trading behavior, and undisclosed interests matters. Volume and social-media popularity are not independent proof of value, and the quoted price may be difficult to realize when buyers disappear.