The cryptocurrency community is very dependent on social media, but this is not necessarily a good thing.

Twitter, Reddit, and TikTok have all become virtual gathering places for crypto investors and enthusiasts, which makes them attractive targets for the pump-and-dump scam, a specialized kind of fraud. According to research conducted by the cryptocurrency data firm Chainalysis, these crypto scams, also known as “rug pulls,” generated more than $2.8 billion worth of cryptocurrency in 2021 and accounted for 37 per cent of the year’s total revenue generated by crypto scams, an increase from 1 per cent in 2020.In the cryptocurrency market, pump-and-dump scams occur when people collude to artificially raise the price of a currency to sell it for a profit. A recent cautionary tale describes the experiences of a few investors who dealt with “Squid Game”-based cryptocurrency. One second, the value of a single SQUID coin may rise, and the subsequent collapse. It is believed that the coin’s creators cashed out and fled after earning $3 million from cryptocurrency investors.

In a class action complaint filed in January, Kim Kardashian and Floyd Mayweather are accused of boosting the price of Ethereum, a cryptocurrency unrelated to Ethereum, before firm officials sold the coin for a profit, leaving the general public with an almost useless cryptocurrency. The lawsuit was filed on behalf of all investors in Ethereum.Multiple media outlets have stated that Kardashian and Mayweather either did not respond to comment requests or could not be reached for comment.

Although over 17,000 different cryptocurrencies are available, most industry experts advocate sticking to Bitcoin and Ethereum. Unlike more recent alternative cryptocurrencies, these coins have a more extended history of price appreciation, which explains why this is the case. Experts recommend limiting cryptocurrency holdings to 5 per cent of your portfolio and investing in cryptocurrencies only if you have an emergency fund, have paid off high-interest debt, and are following a diversified traditional investment plan. Cryptocurrencies are decentralized digital assets that use cryptography for transaction security and verification.

According to analysts, altcoins are often more volatile and speculative than cryptocurrencies and carry additional risks such as pump-and-dump fraud and other schemes. Investors who experiment with alternative cryptocurrencies must be aware of these hazards. Here is all you need to know about pump-and-dump scams using cryptocurrencies, along with advice on how to avoid them.

WHAT DOES THE PHRASE “PUMP AND DUMP” SCAM MEAN?

A pump-and-dump scheme occurs when a group of traders, such as the founders or collaborators of a coin, provide misleading or fraudulent information to artificially inflate the price of an asset before selling their shares at the inflated price. It is more likely to occur when buyers are misled by online marketing and know little about a coin. This might cause ordinary investors to lose a substantial amount of money.

A market for investments that are primarily uncontrolled has the potential to exacerbate the situation significantly. On the stock market, pump-and-dump schemes are illegal, but cryptocurrency regulations are still being drafted. Therefore, scammers are using the opportunity to see what they can get away with.

HOW TO AVOID PUMP-AND-DUMP CRYPTO SCAMS IN THE MARKET

LEARN THE FUNDAMENTALS BEFORE INVESTING IN CRYPTOCURRENCIES

You may be tempted to join the movement when you see other people making money or claiming to do so from a trend. According to Kiana Danial, founder of Invest Diva and author of “Cryptocurrency Investing for Dummies,” “it takes a tremendous bit of self-control not to want to do what other people are doing, much alone a celebrity that you adore.”

This, according to Danial, happened with penny stocks and during the dot-com boom as a consequence of people’s desire to join in an activity despite their lack of knowledge. “We had several negative repercussions, and Bitcoin is the same,” she continues. There were several tragic outcomes. It is because of the lack of knowledge among the population that they are so readily deceived by it.

To make an educated choice regarding which alternative currency to acquire, Danial urges investors to first educate themselves about the coin’s community, purpose, and history. Follow the white rabbit through the hole and discover what this is all about. Danial inquires, “What precisely is the problem they are addressing?” According to her, efforts that help people do tasks more efficiently, affordably, or quickly; category kings (when a company’s name has become a verb, such as Google); or organizations whose names have become verbs are valuable. She adds, “All the excitement and FOMO will pass, and the winners will be those who provide actual value.” “The winners will be those who are generating value.”

According to Danial, before making purchases connected to blockchain technology or decentralized systems, it is crucial, to have a thorough grasp of the asset you are contemplating investing in. She thinks that “human psychology” is the leading cause behind financial market fluctuations.

According to Doug Boneparth, a licensed financial adviser and president of Bone Fide Wealth in New York, the lack of specific legislation governing cryptocurrency makes it easier for crypto scam artists to operate. “You also have that buzz, that “this is the next cool thing” factor,” he continues. Additionally, you possess this competitive edge. Even while many early investors in crypto as a new asset class have gotten affluent, the construction of a new financial system is still in its infancy. According to Boneparth, there will be a great deal of noise in this new world.

If you want to learn about peer-to-peer transactions on your own, you may start by reading the Bitcoin white paper, according to Boneparth. This will assist you in comprehending how these transactions operate. ” If you want to learn the fundamentals of blockchain technology, this is an excellent place to start. He suggests that one needs to be familiar with the underlying technology to appreciate all of this. You may continue your blockchain and cryptocurrency education by reading more about them.

“Turkish crypto exchange Thodex accounted for a majority of the lost funds on the list after its founders went missing with over $2 billion in client funds in April 2021.”

DeFi ‘Rug Pull’ Scams Pulled In $2.8B This Year: Chainalysis https://t.co/PSfOsNWrTh

— Çetin Kaya Koç (@cetinkayakoc) December 17, 2021

According to Boneparth, the bitcoin industry is now a lawless frontier. Incredible amounts of innovation, usefulness and value are being produced. “There is a great deal of innovation, utility, and worth being produced, but the extreme examples, both positive and negative, drown out the more practical, long-term matters that you should focus on.”

The fact that cryptocurrencies are primarily unregulated makes them a riskier investment, so you should do your research.

ENJOY YOURSELF BEFORE YOU HAVE TO PAY.

To invest in speculative cryptocurrencies, you should start with a small amount to understand how everything works. According to Boneparth, just knowing how to connect or link a bank account to an exchange to buy bitcoin is a huge learning experience. When was the last time you did anything similar? You are now placing your confidence in an unreliable system.

You should begin by investing a little amount, such as $1, $5, or $20, to observe how things work before putting all of your money into a currency you just learned about. Instead, begin with tiny expenditure. “It’s a $20 learning lesson that might give you tremendous returns by helping you comprehend where things are headed, and it could also open your eyes to actual investment possibilities.” (It’s a $20 learning lesson, but it might pay off in spades if you grasp where things are headed.)

And even if you do lose $20 (or less), this brings us back to another piece of advice that financial experts recommend: Don’t invest more in cryptocurrency than you can afford to lose if its value plummets through the floor or, even worse, is involved in a pump-and-dump scheme or another scheme.

CONTINUE TO IMPLEMENT YOUR PLAN.

Finding a strategy that works for you and sticking to it may reduce your likelihood of falling for a crypto scam. Danial asserts she is immune to the appeal of pump-and-dump scams since she focuses on value investing. A firm worthy of investment sells at a price that seems lower than its underlying value. “Strangely, I use Warren Buffett’s value investing strategies in both my investment portfolios and my cryptocurrency investment strategy,” adds Danial. “Warren Buffett opposes cryptocurrencies, but I continue to implement his ideas” Because Ethereum may be used to produce new non-fungible tokens (NFTs) and build further decentralized applications, an investor may be able to see a purpose for Ethereum beyond the currency itself (dapps).

Danial says you should choose a strategy and risk tolerance level, research the pros and cons, and assess the current market sentiment. Danial’s initial thought upon seeing a high is, “That doesn’t even fit into my strategy.” I do not mind passing up an “opportunity” since I have a plan and know how to implement it. When deciding what to buy, I do not check Twitter trends to see what others are talking about.

Also, read –  Top 5 Crypto Online Gambling Websites

BE SCEPTICAL OF CELEBRITY AND PROMINENT PEOPLE’S ENDORSEMENTS.

It is conceivable that the celebrity or influencer has reasons for advocating a particular currency, such as getting paid to be a spokeswoman for the cash, holding the coin and desiring to increase its value, or having solid personal confidence in the currency. It is pretty doubtful that their only aim is to help your financial success.

Suppose you hear investors in alternative cryptocurrencies bragging about how “early” they invested in a specific new coin. In that case, you should research whether there is reason to assume that others will contribute more money later. According to Boneparth, “they are backing your investment,” which is often an asset they have also invested in. “We are growing, but it does not imply that you should invest.” Consequently, it would help if you learned as much as possible.

Swindlers may even approach you personally and pose as influential figures while attempting to take your money. Suppose someone you follow seems to be sending you a message on Instagram. In that case, you should explore more since this is common among credible personal finance experts who have developed active communities on Instagram.

Danial says, “I have more than one thousand impersonators across Instagram, TikTok, and Facebook combined.” “They steal my photos, including pictures of myself and my kid, they replicate my name, and then they follow and direct message (DM) my followers in an attempt to defraud others,” I said. “They take my photographs, as well as photographs of my kid and me,”

According to Danial, if someone contacts you claiming to provide free advice or coins, you should check their handle on Google to see whether it matches the verified handle of the person they claim to be. “Do not respond to anybody unless you have conducted sufficient web research and determined their authenticity. She says, “My general rule is that if something smells fishy, it probably is.”