How to Avoid Crypto Pump and Dump in 2024

Crypto scam warning signs

Identifying cryptocurrency scams can be tricky. Here are some key tips to help you recognize, avoid, and report the most common crypto scams, safeguarding yourself and others from falling prey to fraudulent schemes.

- Social media profiles. No profile picture, unusual account names, or language in comments on social media posts expressing excessive gratitude or enthusiasm for winning giveaways from a company.

- Social media comments. Social media comments are limited or disabled entirely to prevent followers from indicating that it might be a scam. 

- Crypto giveaway scams. To claim your reward, you're asked to send money through a digital wallet, credit card, or other means beforehand. 

- Suspicious wallet activity. You notice unfamiliar crypto assets or digital tokens in your wallet.

- Promises of free crypto instantly. The request is marked as "urgent" or you're feeling pressured to respond hastily.

- Testimonials of others earning free crypto. Fake testimonials can be challenging to detect, especially when scammers employ paid actors.

- Scammer websites. The website or content has spelling or grammar mistakes.

The rise of crypto pump and dump schemes in DeFi in 2023

In efforts to comprehend and address these practices, researchers at Chainalysis have analyzed 

blockchain data, with a particular emphasis on the decentralized finance (DeFi) ecosystem within the Ethereum network. 

Between January 2022 and December 2023, researchers examined Ethereum's activity, finding over 370,000 tokens launched, with around 168,600 on at least one decentralized exchange (DEX). To spot potential pump and dump candidates, they established "Criteria A," including tokens bought five times or more on DEX without major holder connections, those with significantly reduced liquidity from a single address, and tokens with less than $300 in current liquidity.

Calculating Profits

The study also looked at the profits made by those who launched tokens meeting criterion A. Researchers estimated that these actors collectively earned about $241.6 million in 2023. However, each token meeting the criteria only made an average profit of $2,672, showing limited success in pump and dump activities.

One notable case involved an address (Wallet 1) that launched 81 tokens meeting criterion A, earning an estimated $830,000. This case shows how individuals can exploit the system by repeatedly launching tokens using the same scheme.

The analysis of ERC-20 tokens on DEXs in 2023 raises concerns about the prevalence and impact of pump and dump schemes in decentralized finance. While many tokens show suspicious patterns, their overall impact on trading volume remains small.

How to avoid cryptocurrency scams

To protect your hard-earned money and investments, it's essential to be vigilant and informed about potential scams in the crypto space. Here are some key strategies to help you avoid falling victim to cryptocurrency scams:

• Research Before Investing: Thoroughly investigate the cryptocurrency and its background before investing any money.

• Beware of Unrealistic Promises: Be wary of schemes promising guaranteed high returns with little or no risk.

• Verify Credentials: Check the credentials of the cryptocurrency project, including its team members and advisors.

• Avoid Pressure to Invest Quickly: Beware of tactics pressuring you to invest quickly or urgently.

• Stay Informed: Stay updated on the latest news and developments in the cryptocurrency space to identify potential scams.

• Trust Your Instincts: If something seems too good to be true, it probably is. Trust your instincts and proceed with caution.

As the cryptocurrency market continues to evolve, the risk of falling victim to pump and dump schemes remains ever-present. However, by staying informed, conducting thorough research, diversifying your portfolio, and exercising caution, investors can mitigate these risks and navigate the crypto landscape with greater confidence in 2024. Remember, diligence and skepticism are your allies in the pursuit of sustainable investment opportunities in the world of cryptocurrencies.