What Is a Pump and Dump? | Ledger (2024)

By Lipsa Das

What Is a Pump and Dump? | Ledger (1)

Nov 22, 2023 | Updated Nov 22, 2023

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What Is a Pump and Dump? | Ledger (2)
— A crypto pump and dump scheme involves artificially inflating the value of a token with marketing or whale activity to attract more buyers, then selling the overvalued asset at a profit which removes the coin’s liquidity therefore crashing the price.

— Pump and dump schemes typically have four phases: pre-launch, launch, pump and dump — with the first three phases designed to instill the FOMO within investors.

— To avoid Pump and dumps, watch out for the red flags and use data and logic instead of emotions to make investment decisions.

The crypto market has attracted a lot of individual and institutional investors over the past few years. However, this has also led to an increase in scammers who want to capitalize on the lucrative opportunities and the relative lack of regulations. Crypto scams lurk around every corner like hidden landmines—one wrong step, and you might never see your money again! But not all scams are the same; some wear their deceit like a badge, while others play a more subtle game of manipulation.

Pump and dump schemes are a nasty breed of crypto scams promising ridiculously high returns. These scammers leverage psychology to trap victims, playing on their emotions by dangling a carrot (read: “Get rich quick”). The victims often take the bait out of their fear of missing out (FOMO).

The more you know about crypto and its dangers, the less likely you will fall prey to these scams. In this article, you’ll learn how the pump and dump schemes work, how to spot the obvious and the not-so-obvious red flags, and everything in between.

What is a Crypto Pump-and-Dump?

A crypto pump-and-dump is a market manipulation scam where perpetrators create or obtain large amounts of an altcoin, promote it to fraudulently inflate (pump) the token price, and then cash out by selling (dumping) them to unsuspecting investors.

When perpetrators dump their tokens, the supply increases as the price decreases. Since many of these assets have little to no value, their prices will not recover after the scammers dump their holdings. In other words, innocent investors are stuck with nearly worthless tokens while the fraudsters count their loot.

Pump and Dumps: Explained

Pump and dump schemes aren’t exclusive to crypto—they have roots in traditional finance dating back to the South Sea Bubble in the early 18th century. Even the king of Great Britain, George I, bought stocks of the South Sea Company during its pump. When it crashed in 1720, Isaac Newton, the Royal Society, and countless investors, rich and poor, were among its victims.

Pump-and-dump fraudsters have evolved with time. Jordan Belfort, the lead character in ‘Wolf of Wall Street,’ went to prison for pumping and dumping penny stocks using cold calling through his brokerage Straton Oakmont.

Now, amid the regulatory gaps, crypto scammers are using the internet and anonymity to scam investors. According to Chainalysis data, 24% of all new tokens launched in 2022 showed signs of being a pump-and-dump scheme. Investors spent $4.2 billion buying these pump-and-dump tokens, while the fraudsters netted $30 million.

How Do Crypto Pump and Dumps Work?

Now that you have a basic idea of what a pump-and-dump scam is, let’s get you acquainted with its inner workings. From there you can easily identify project red flags and save yourself from getting dumped on!

Pre-Launch Phase

A pump-and-dump scam hinges on the marketing around a relatively worthless token. It’s all about hype—the higher it is, the more investors buy in, thus lining the fraudsters’ pockets.

They typically build up this FOMO feeling via platforms like X (formerly Twitter), Discord, and Telegram. Wherever there are uninformed people to target, scammers will strike.

Essentially, pump and dumpers employ tactics like allowlists and pre-sales to build a base of the first buyers.

An allowlist, sometimes called a whitelist, gives certain participants early access, and often additional privileges. Unfortunately, scammers use them to create an air of exclusivity and make you feel special. They sell you the idea of a unique opportunity to invest before everyone else.

If you’re on the allowlist, you can typically buy a coin or token before the general publicin a pre-sale. Sometimes you will even receive a discount too, convincing you further of the project. But it all goes downhill from there.


Leading up to the launch and even after, the scammers employ shillers to bring in more potential victims to the project. Crypto shilling refers to promoting a token or coin—usually by those with a large social media following or reputation and authority—to boost its perceived value.

The shillers use FOMO to create a sense of urgency and excitement. ‘You didn’t make it to the allowlist and missed the pre-sale? Well, here’s your very last opportunity to get in at the ground level and rake in millions later,’ they will tell you. The victims find themselves shilling the token for the scammers as they fall for the fake buzz.


The next stage is the pump. This means the list of doomed victims has already bought in, which causes the price of the asset to skyrocket. At this point, those who missed out on the pre-sale often feel like they’ve missed out. But there lies the folly. The more latecomer investors buy in at higher prices, the higher the price climbs. And unfortunately, that’s exactly what the scammers are planning.


Once the token price has reached a level the scammers deem profitable, they coordinate and dump their holdings simultaneously. This massive sell-off causes the token’s supply to far exceed its demand thereby tanking the price. This, in turn, causes panic among investors who also rush to sell. But for them, it’s already too late: the tokens have no value. All of the token’s liquidity is drained, leaving the scammers with a huge profit and the unlucky investors with worthless digital assets they cannot sell.

How to Spot a Pump and Dump: Top Red Flags

Now, let’s talk about how you can find the red flags that are the hallmarks of pump and dump operations. You don’t need in-depth technical knowledge to spot such flags, just vigilance. And, of course, it’s worth reminding you that if an investment opportunity looks too good to be true, it probably is a scam.


When researching a project, find out how and where the token is allocated. To explain, speculating on the potential value of an asset requires you to know the total number of assets that will be issued, and where they may go.

You wouldn’t want to buy into an asset that allocates most of its tokens to a single centralized entity, would you? In this case, it would mean that central power would be able to sell all of their assets at once, causing a price dump. Thus, before buying in, you should always check out an asset’s plan for allocation including;

  1. The plan for its full allocation details
  2. Whether the founders or contributors own a significant portion of the total number of assets.
  3. The vesting periods and escrows for project insiders

You can cross-check their claims on-chain using block explorers such as Etherscan to see exactly where all of the tokens are. But of course, allocation is just part of the problem. What about the founders of each crypto project?

Founders’ Reputation

The reputation of the project’s founders speaks volumes about the token’s legitimacy and trustworthiness. Seek to answer questions like:

  • Are the founders transparent about their identities and past projects?
  • Have the founders been previously linked to any scams or controversies?
  • Do the founders have a track record of building legitimate, successful projects?
  • Are the founders’ social media profiles and online presence consistent and credible?

Inquiries along similar lines can help you discover hidden red flags, if any. In short, bad actors rarely strike once. That means if a founder has some skeletons in their closet, you might want to avoid their future projects.

Suspicious Social Media

You can detect some tell-tale signs of a pump and dump by monitoring the social media activity of the project.

Firstly, many pump and dump projects may turn off comments for their social media posts. Typically they do so to prevent negative feedback or to avoid questions. This is a very good method of spotting a scam, as any legitimate project usually encourages feedback and engagement.

Next, you may also encounter inflated follower or like/view ratios. If post engagement is typically disproportionate to the follower counts, it likely indicates fake engagement. You can also look into the accounts liking and commenting on a project’s post to discover if they seem genuine or not.

Finally, checking their Discord server for suspicious activity is also a good plan. Many pump and dump projects will have a Discord server teeming with unhappy community members or bots. Too many bots, a lack of genuine discussions, or a flood of complaints are all cause for concern.

Are Pump and Dumps Legal?

Pump and dump schemes in the stock market are illegal in several parts of the world, including the US, and EU, where securities laws prohibit it. That said, crypto scammers use anonymity to evade authorities, and crypto still lives in a regulatory gray area in most parts of the world.

As an investor, you want to remember to use data and logic, not your emotions and FOMO, to make investment decisions. Letting your emotions lead your investment decisions will drag you into traps like pump-and-dump scams.

Avoiding Pump and Dumps: Just One Way To Stay Secure

Pump and Dump schemes are far from new, but using new technologies, they are becoming smarter and less-detectable. Using your new-found analytics skills, and staying up to date with the latest scams can help you avoid them, but it’s not the only thing you can do.

To clarify, the Ledger Ecosystem can help you become better equipped to deal with bad actors. In Ledger Live you can access over 5,500 coins and tokens. Plus, you can clearly manage and track all of your assets in one simple place, meaning you don’t have to worry about recording the details of multiple accounts. Plus, all apps and services in Ledger Live’s Discover section benefit from a clear signing plugin, meaning when you interact with an external platform via Ledger Live, you can always read what you are signing in human-readable language and can sign in confidence reading the transaction details on your trusted display.

So what are you waiting for? Download Ledger Live, connect up your Ledger Device, and start exploring web3—with the benefit of security on your side.

What Is a Pump and Dump? | Ledger (2024)


What Is a Pump and Dump? | Ledger? ›

A crypto pump-and-dump

Pump and dump (P&D) is a form of securities fraud that involves artificially inflating the price of an owned stock through false and misleading positive statements (pump), in order to sell the cheaply purchased stock at a higher price (dump).
https://en.wikipedia.org › wiki › Pump_and_dump
is a market manipulation scam where perpetrators create or obtain large amounts of an altcoin, promote it to fraudulently inflate (pump) the token price, and then cash out by selling (dumping) them to unsuspecting investors.

What does the expression pump and dump mean? ›

pump and dump (countable and uncountable, plural pump and dumps) (finance) A form of financial fraud where the fraudster buys stocks cheaply, generates excitement about those stocks to create a temporary price increase, then sells the stocks before the price goes back down.

Is a pump and dump illegal? ›

Key Takeaways. Pump-and-dump is an illegal scheme to boost a stock's or security's price based on false, misleading, or greatly exaggerated statements. Pump-and-dump schemes usually target micro- and small-cap stocks. People found guilty of running pump-and-dump schemes are subject to heavy fines.

What is the pump and dump relationship? ›

(slang) A situation where a person has sex with a partner on a single occasion, without immediate intention of further contact or pursuing a serious relationship.

How does a pump and dump work? ›

In a pump and dump scheme, fraudsters typically spread false or misleading information to create a buying frenzy that will “pump” up the price of a stock and then “dump” shares of the stock by selling their own shares at the inflated price.

What are signs of a pump and dump? ›

A pump-and-dump scheme relies on excitment and a heightened sense of urgency. The hype often comes from a third party, such as a newsletter or social media account. If you're looking at an investment and the person who's promoting it isn't someone you trust, the hype may be part of the scam.

Why do people pump and dump? ›

Pumping and dumping is a technique you can use if there are harmful substances in your breast milk for a period of time. It literally means pumping (or otherwise expressing) the breast milk out of the breast and then dumping it instead of giving it to your little one.

What is a real life example of pump and dump? ›

In the early 1990s the penny-stock brokerage Stratton Oakmont artificially inflated the price of owned stock through false and misleading positive statements in order to sell the cheaply purchased stock at a higher price. Firm co-founder Jordan Belfort was criminally convicted for his role in the scheme.

Is pump and dump still a thing? ›

Whether or not to pump and dump is a personal choice. There aren't many reasons that mean you need to pump and dump, but there also aren't many drawbacks to the process. For mothers who produce more breast milk than their babies can eat, choosing to pump and dump can be helpful.

What is the punishment for pump and dump? ›

If you are involved in any part of the pump and dump scam, you can face serious criminal charges. While pump and dump schemes can lead to jail time and significant financial penalties, prosecutors must prove beyond a reasonable doubt that you broke the law.

How long do pump and dumps usually last? ›

How long does a pump and dump last? That depends on what the pump and dump groups agree on, some only last a few minutes while others can last a few hours.

How do you take advantage of pump and dump? ›

This plan consists of two elements: Fraudsters "pump" a stock by spreading fake news that they have insider information and should buy immediately. To "dump" or sell off at a high price once prices have risen. If the prices drop sharply after the traders sell their shares, new investors will lose their investment.

Does pump and dump work drugs? ›

First, most medicines do NOT require pumping and dumping because the amount of medicine that actually gets to the baby is none or minimal. The way drugs work in a pregnant body related to a fetus' health is vastly different than how drugs work related to human milk and a baby's health.

How to avoid pump and dump? ›

Check the age of a company before buying its stock

Before investing in a penny stock, make sure to know how long the company has been in business. Pump and dump fraudsters will often try to convince people that a young company will become profitable within a short period of time.

Is flipping stocks illegal? ›

In the case of flipping stocks from an initial public offering (IPO), buyers are sometimes able to make a profit on these shares because of the scarcity. Investors should be aware that while flipping IPOs isn't against the law, it is often frowned upon by underwriters and issuing companies.

How long does medicine stay in your breast milk? ›

In general, this occurs 1-2 hours following oral medication. As a general principle, advising the administration of medication immediately following a breast feed is the safest option for the baby but this is not true for all drugs.

What is a real life example of a pump and dump scheme? ›

In the early 1990s the penny-stock brokerage Stratton Oakmont artificially inflated the price of owned stock through false and misleading positive statements in order to sell the cheaply purchased stock at a higher price. Firm co-founder Jordan Belfort was criminally convicted for his role in the scheme.

How long should you pump and dump after taking medication? ›

Opiates increase the baby's risk of apnea—stopping breathing—so if you are using any opiates at all, including heroin, methadone, and many prescription painkillers, don't take the risk. Pump and dump for the entire time that you are taking the drug.

What is the pump and dump rule? ›

"Pump and dump" is a term that's used to describe pumping breast milk and then dumping the milk out instead of storing it for another feeding. It's often done by women who think they've had too much to drink. Keep in mind that pumping and dumping doesn't get alcohol out of your system.

What is the legal term for pump and dump? ›

"Pump and Dump" is a type of stock fraud involving the use of false or misleading statements to increase stock prices and then sell the inflated stocks to the public.


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