Crypto Pump and Dump: How It Works, Who’s Behind It, and How can you protect yourself

What is a Pump and Dump in crypto?

A pump and dump is a market manipulation scheme where the price of a cryptocurrency is artificially inflated. Promoters use hype, false news, and coordinated buying to push the price higher. Once enough retail investors buy in, the manipulators sell off their holdings, crashing the price. Those who joined late are left with heavy losses.

Pump and dump schemes have existed for decades in traditional finance. The rise of crypto has made them easier to execute. With decentralized exchanges and anonymous transactions, scammers can operate without oversight.

How Do Pump and Dump Schemes Work?

Pump and dump schemes follow a predictable pattern:

1. Selection of a Target Coin – Scammers pick a low-volume token, making it easier to manipulate.
2. Organized Hype – They use Telegram, Discord, and social media to spread excitement. Some even create fake news.
3. Artificial Pump – Coordinated buys push the price up quickly. Bots and influencers fuel the rally.
4. Retail Investors Join – As FOMO (fear of missing out) kicks in, everyday investors jump in.
5. Dump Phase – Early organizers sell at the top, crashing the price.
6. Retail Investors Lose – Those who bought late are left holding worthless tokens.

Src: BMC

Why Do People Fall for Pump and Dumps?

Greed and the promise of quick profits drive people into these schemes. The idea of turning $100 into $10,000 overnight is irresistible. Many traders believe they can exit before the crash. But most fail.

Crypto also lacks regulation. Unlike stocks, where pump and dumps are illegal, crypto has no consistent global rules. Scammers exploit this legal gray area.

Another key reason is misinformation. Social media amplifies hype, and many investors fail to do proper research. The illusion of legitimacy makes these schemes even more dangerous.

New traders are especially vulnerable. They see rapid gains and assume it’s a genuine opportunity. By the time they realize the truth, it’s too late.

Celebrity Pump and Dumps

Famous personalities play a significant role in market manipulation. They promote coins to millions of followers, often without disclosing financial ties.

In 2022, Kim Kardashian settled with the SEC for promoting EthereumMax without revealing she was paid. Floyd Mayweather and DJ Khaled faced similar charges. Their endorsements misled investors into thinking the projects were legitimate.

Elon Musk has also influenced crypto markets. His tweets about Dogecoin sent the price soaring. Though not a traditional pump and dump, his influence highlights how celebrities can manipulate prices.

Some influencers knowingly take part in these schemes. Others get paid to promote projects without understanding the consequences. Either way, retail investors bear the losses.

We have written a complete thread of celebrities being involved in crypto manipulation (either hacked or knowingly), take a look at it here – Top 10 Celebrity X Accounts Used To Manipulate Crypto Prices .

Javier Milei and the LIBRA Token

Javier Milei, the president of Argentina, found himself at the center of a major cryptocurrency controversy involving the LIBRA memecoin. Milei promoted LIBRA on X (formerly Twitter) to his millions of followers, suggesting it was a private initiative aimed at boosting Argentina’s economy. His endorsement created speculation that the token had government backing, which led to a surge in investor interest. LIBRA’s market cap skyrocketed to $4.4 billion before suddenly collapsing in what analysts now describe as a classic pump-and-dump scheme​.

The crash resulted in losses exceeding $286 million for over 74,000 traders. Blockchain investigators uncovered evidence of insider trading, with some wallets cashing out millions before the token’s collapse. One high-profile investor, Dave Portnoy, reportedly lost $5.17 million but later received $5 million in compensation, raising suspicions of insider involvement​

The scandal has triggered political turmoil in Argentina. Legal complaints accuse Milei of misleading investors by using his platform to promote LIBRA. Some lawmakers have even initiated impeachment proceedings, calling it an unprecedented financial fraud. The incident has fueled broader concerns about politicians endorsing memecoins, echoing similar controversies in the crypto space​.

Basically, anyone can pump and dump in today’s world.

The Most Famous Pump and Dumps

Some of the biggest pump and dump schemes include:

• Bitconnect (2017-2018) – A Ponzi scheme disguised as a trading platform. It collapsed after reaching a $2.6 billion market cap.
• Save The Kids Token (2021) – Promoted by influencers, this token crashed after insiders dumped their holdings.
• Squid Game Token (2021) – Marketed as a play-to-earn token, it surged 83,000% before the creators disappeared with investors’ money.
• Dogecoin (2021-2022) – While not a traditional scam, coordinated social media hype pumped the price. Many late investors lost money.
• Luna/Terra Crash (2022) – Though not a pump and dump in the classic sense, the project’s collapse was fueled by hype and unsustainable mechanisms, leaving investors with massive losses.

The Legal Side: Are Pump and Dumps Illegal in Crypto?

In traditional stock markets, pump and dumps are explicitly illegal under securities laws. The U.S. Securities and Exchange Commission (SEC) and other regulatory bodies classify these schemes as market manipulation, punishable by fines and imprisonment. However, in the cryptocurrency sector, legal enforcement can be challenging due to decentralized exchanges and varying international regulations.

Regulatory Actions and Legal Consequences

Authorities worldwide have cracked down on pump-and-dump schemes. In 2021, the SEC charged John McAfee with promoting cryptocurrencies without disclosure, which falls under deceptive market practices. The infamous Squid Game Token scam is another example where investors lost millions due to a pump-and-dump scheme​.

In some cases, legal actions have targeted influencers and celebrities who promoted questionable projects. For instance, in the Centra Tech case, promoters were charged with fraud after misleading investors with false endorsements​.

Jurisdiction-Specific Regulations

• United States: Crypto pump and dumps are prosecuted under fraud and securities laws. The SEC and CFTC actively monitor manipulative activities.
• European Union: The Markets in Crypto-Assets Regulation (MiCA) aims to prevent market manipulation, including pump-and-dump tactics.
• Asia: Countries like China and South Korea have strict laws against crypto fraud, often banning unauthorized token promotions.

While some crypto markets remain lightly regulated, many countries are increasingly cracking down on pump-and-dump activities. Traders and investors should remain cautious, as involvement in such schemes could lead to financial losses and legal consequences

How to Spot and Avoid a Pump and Dump Scheme

You can protect yourself by recognizing red flags:

1. Massive Hype from Unknown Sources – Be cautious of coins that suddenly trend on Telegram, TikTok, or Twitter.
2. Promises of Quick Gains – If someone guarantees high returns, it’s likely a scam.
3. Low Liquidity Coins – Scammers target small coins that are easy to manipulate.
4. Celebrity or Influencer Endorsements – Always check if they disclose financial incentives.
5. Sudden Price Spikes with No News – If a token surges without real fundamentals, be cautious.
6. Anonymous Developers – Many pump and dump projects have unknown teams. Lack of transparency is a red flag.
7. Pressure to Buy Quickly – Scammers create urgency to prevent due diligence.

Conclusion

Crypto pump and dumps will continue as long as investors chase quick profits. Understanding how these schemes work is the best defense. Do your research, avoid hype, and never invest based on FOMO.

Regulation may eventually reduce these scams, but self-education is the strongest protection. The crypto market is full of opportunities—but also risks. Stay informed, stay skeptical, and protect your investments.

The best strategy? Invest in projects with real value, strong teams, and sustainable growth—not quick cash grabs. Crypto is here to stay, but scammers are too. The more you know, the safer you’ll be.