Bitcoin Price Today and Market Manipulation: How Pump-and-Dump Schemes Affect BTC’s Daily Value
For instance, Bitcoin, the most famous of the cryptocurrencies, has received considerable attention for its potential to change the way we move money around. But its market is not above being adulterated. The ‘pump-and-dump’ scheme is one of the most notorious tactics used by bad actors in the cryptocurrency space.
Their impact on the Bitcoin price today is immense, creating intense price volatility that lulls or worse, misleads newer Bitcoin traders. Knowing how pump and dump schemes work and how they affect Bitcoin’s price might help against being a victim of such scams and lead to more intuitive investments.
So, What is a Pump and Dump Scheme?
A pump-and-dump scheme a type of fraud, occurs when a company deliberately misleads stock traders by inflating the value of its shares through false notices.
Market manipulation of an asset’s price (in this case, Bitcoin), either by certain traders or entities, is collectively known as a pump-and-dump scheme. These manipulators will purchase as much as they possibly can until the price reaches a desired level at which point they’ll dump (sell off) all that they bought, leaving unsuspecting buyers holding a particularly hefty loss as the price crashes. Pump and dump schemes have been more common in the stock market with penny stocks, but with the cryptocurrency market, where we don’t have regulation, they have been more frequent.
Pump and dump schemes in the Bitcoin context are often planned via social media channels, messaging platforms such as Telegram or Discord or even private chat rooms. Manipulators can easily organize coordinated efforts to create hype about Bitcoin or some other smaller cryptocurrency, attracting inexperienced traders to buy in at rosy prices using these platforms.
How Pump and Dump Schemes Influence Bitcoin’s Daily Price
Though Bitcoin is less commonly the target of pump and dump schemes than smaller altcoins due to its large market capitalization, pump and dump schemes can have immediate and dramatic effects on the daily price of Bitcoin. Still, when pump-and-dump schemes see a Bitcoin asset, they lead to massive volatility which distracts traders about the real market value of the asset. Here’s how these schemes affect Bitcoin’s daily price movements:
1. Sudden Price Surges
Bitcoin pumps during the “pump” phase,when the price of Bitcoin increases quickly and sharply. Usually, this price surge goes hand in hand with an increase of trading volume, because that’s when the manipulators start buying lots of Bitcoin to raise the price artificially. At a higher price, retail traders start taking notice, seeing that the price is climbing and want to jump into the market, thinking that they are going to miss out on profits.
It is known as the ‘fear of missing out’ (FOMO), which brings in even more buyers, increasing the price even more. Traders who are unaware of the manipulation will see this as a high bullish signal, and will then invest, driving the pump higher. You should always search around Google and social media channels for more information on what scheme you are investing in.
2. Price Crash After the Dump
The second stage of the scheme is when the manipulators sell their holdings. Once the price has been manipulated upwards, the manipulators begin to sell their Bitcoin at their inflated price. The market is flooded with sell orders, and demand is paling in comparison with supply, causing the value of Bitcoin to fall like a stone.
Other traders will panic as soon as the price starts crashing, and sell their Bitcoin to avoid further losses, this will only make the pressure on the price going down worse. As a consequence, Bitcoin’s value goes down tremendously over an extremely short period. The traders that got in during the “pump” are now left holding Bitcoin, at a price much further above its true value, typically sinking them quite a bit.
3. Increased Volatility
Bitcoin’s overall volatility is especially driven by pump and dump schemes. These schemes cause sudden price changes that can even catch experienced traders on the head. For traders who base their trading on technical analysis or long run trends, such wild price movements that occur due to pump and dump schemes are going to disrupt their strategies and make it hard for them to tell if Bitcoin is headed up or down.
This too, increases volatility, which is then a deterrent to institutional investors and those investors who hold Bitcoin in the long term, as it gives the appearance of an unstable market. And it can stop Bitcoin from achieving higher price stability and mass adoption.
Signs of a Pump and Dump Scheme
One thing that gives Bitcoin more protection from pump and dump schemes than other smaller cryptocurrencies is that people still see Bitcoin as large enough that someone wouldn’t be able to manipulate it on their own. However, it is still good to be aware of the warning signs. Here are some common indicators of a pump-and-dump scheme:
Unusual Spikes in Price and Volume: A jump in Bitcoin’s price or trading volume that happens very quickly and very dramatically, usually without explanation, can indicate a pump-and-dump. When traders see price movements that just don’t match the rest of the market or the news, they should be careful.
Hype on Social Media: For instance, if Bitcoin is heavily promoted on social media platforms, chat rooms or forums promising guaranteed profits or even ‘moon’ predictions, this may be a red flag. Social media is often used by manipulators to spread their FOMO among unsuspecting traders and get them to buy a new coin at an inflated price.
Lack of Fundamental News: One important sign of manipulation is a price increase without any corresponding fundamental news: regulatory news, large partnerships or technological evolutions etc. If a Bitcoin price pump is occurring and you can’t see why, then perhaps there is a pump and dump scheme.
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How can You Protect Yourself from Market Manipulation?
To protect yourself from falling victim to pump-and-dump schemes, it’s important to stay informed and practice caution when trading Bitcoin:
Avoid Acting on Hype: Don’t believe social media hype, especially if it guarantees huge rewards in little time. So conduct your own research and please don’t buy into the market excitement, using only credible sources of news.
Use Stop-Loss Orders: Stop-loss orders can be used to protect your capital by in this case automatically selling your position when Bitcoin’s price falls under a certain amount. It is a way to reduce lose during a price crash due to manipulation.
Focus on Long-Term Trends: Bitcoin’s price has a tendency to be hugely volatile but longer term trends tend to be more reliable than short period spikes. Looking at market fundamentals over the long term — adoption rates, network development and institutional investment — this gives us a much better view of what Bitcoin is truly worth.
