What’s a Pump and Dump Scam?

Chart showing a steady increase and a sharp decrease

It’s one of the oldest scams in the history of selling: A con artist promotes something of little value, then vanishes with rubes’ money before the deception is discovered. It’s well-known in the stock markets, where for decades phone-call boiler rooms promoted penny stocks to spike their prices and then disappeared with the profits.

More recently, pump and dump schemes have become disturbingly commonplace in the crypto space. A recent study showed that nearly one-quarter of all the tokens launched in 2022 saw price movements consistent with a pump and dump scheme.

Over 9,900 ICOs seemed to be impacted by price manipulation. The attackers’ total take was estimated at $30 million, while victimized crypto users lost some $4.6 billion.

In this article, we’ll look at the unique ways pump and dump plays out in crypto. You’ll learn how to detect possible crypto pump and dump schemes and how to avoid being victimized.

What is a pump and dump scheme?

In a pump and dump scheme, the perpetrator promotes an item they own in quantity–usually with false information or promises–to inflate its price beyond its true value (the pump). Once the price of the item rises, the perpetrator sells their position for a handsome profit (the dump).

Meanwhile, the perpetrator’s sudden sale of large amounts of the item at an elevated price causes the price to crash. Investors find themselves stuck with a now-worthless item. Meanwhile, the perpetrator has vanished.
In a crypto pump and dump scheme, the item in question is cryptocurrency. Most cases involve price manipulation during the initial release of a new coin.

Why is cryptocurrency especially susceptible to pump and dump?

There are several aspects of how token sales operate today that make crypto particularly vulnerable to pump and dump schemes:

  • Anonymous actors–One of the attractions of the blockchain for many users is the ability to transact anonymously. Unfortunately, attackers can exploit that anonymity to execute repeated pump and dump schemes. Chainalysis found just 445 actors were responsible for 24 percent of all the suspected crypto pump and dump schemes in 2022.
  • Irreversible transactions–Blockchain transactions are irreversible, making it harder to recover funds from perpetrators.
  • Many new issues launch on small platforms–Whereas most stocks debut on a handful of well-known exchanges, crypto boasts hundreds of possible platforms that could host a coin launch. The large number of ICOs each year makes it hard for investors to vet them all. There were over 40,000 coin launches in 2022.
  • Interest in ICOs–As with IPOs, there is a class of investors that’s drawn to the high-stakes gamble of investing in new issues. So perpetrators promoting scam ICOs find a ready audience.
  • Encrypted social conversations–Crypto users often chat with other investors on encrypted social media platforms such as Discord and Telegram. The anonymity of these platforms provides the perfect venue for scammers to post false information, entice new investors, and pump up the value of their chosen coin.
  • Malicious honeypot code–Cryptocurrency transactions rely on smart contracts–and those contracts can contain malicious code. In a honeypot scenario, malicious code prevents new investors from selling the linked coin. The pump and dump organizer can then sell at the top while preventing other investors from similarly profiting.

Combine these aspects and you have a perfect playground for pump and dump scammers.

3 Types of actors in a pump and dump scheme

There are several different players who may be involved in a pump and dump scheme:

Coin issuers

The issuers of a new coin may plan to pump and dump it shortly after it begins trading. They may falsely state their token has a practical purpose for project governance or that it will be backed with real assets.

False coins are often created with misleading names that give investors false confidence. In a recent example, blockchain security firm PeckShield found dozens of new coins named after ChatGPT and Bing apparently being pumped-and-dumped, though these tools’ owners–OpenAI and Microsoft, respectively–had not granted their permission.

Pump participants

Sometimes, coin creators recruit a network of friends to help them promote and pump up their coin price. Other times, a group of pump participants comes together on their own.

Whether with the collusion of coin issuers or acting independently, many private crypto pump and dump investor groups exist that work together to manipulate coin prices. Discord and Telegram host many groups with this goal. Some of these groups operate covertly, not referring directly to pumping or dumping their holdings, while others are up-front about what they’re doing.

While most observers would consider these groups’ activities unethical, it’s an open question whether it’s a crime–so these groups continue to operate.

Crypto exchanges

When a pump and dump of a particular coin takes place, the exchange may or may not be a participant. The exchange Yobit has openly promoted pump and dump scams, for instance.

By some counts, there are now more than 1,500 cryptocurrency exchanges. Many are small, fly-by-night operations that may not be trustworthy.

Anatomy of a pump and dump scheme

Let’s break down the inner workings of a pump and dump scheme a bit further and take it step-by-step. You may be surprised to learn how quickly the entire pump-and-dump cycle is executed.


The instigator of the pump and dump scheme creates their coin–or often, merely the illusion of one. They assemble their pump team and plan their start date. One study by industry association USENIX found a crowd of over 1,000 investors is typically assembled in the run-up to a pump and dump scam–and that one 2018 Telegram-based pump and dump crypto group, Official McAfee Pump Signals, had over 12,000 members.

Pre-pump announcement or signal

Once the pump team or group is assembled, the leader preps the group by announcing the pump’s start date and time. They may also impart specific rules the group needs to follow to participate, or instructions on particular apps or tech to use for best results.

The announcement may be straightforward, or may be couched in coded language, to secretly ‘signal’ the investors without alerting authorities or outsiders.


Just before the first pump announcement, all the insiders buy their coins at rock-bottom prices. Once the announcement drops, things move very fast. The insider group buys and holds their coins for the time period the leader defined. They’re also encouraged to hop on social and promote the coin to draw in unsuspecting investors.

As all the insiders buy, the price increases. An asking price may spike dramatically, or rise modestly–say, from 1 cent to 3 cents. That may not seem like much, but that’s a 300-percent gain for the insiders who sell at the top.

Within a very short time–ranging from just a few seconds to a few minutes–it’s time to sell.


As soon as the coin’s price rises to an agreed-upon level, the leader sells their coins at the inflated price. Their group participants follow suit. The price usually quickly collapses to near zero at this point, so any group members who’re asleep at the switch will find themselves wiped out.

Post-pump review

After insiders have taken their profits, the leader may post a brag sheet noting how much the coin’s price spiked at the top of the pump. The report will soft-pedal or omit how many investors were left out in the cold after the price crashed. This review is meant to encourage future participation in future pump and dump schemes run by the same actors.

Not all pump and dump schemes succeed

Profiting from pump and dump is far from a sure thing. Some pump and dump schemes don’t succeed in driving up the price of the coin in which the actor group is investing. Also, the leader could always cash out early, causing a price crash that impoverishes their investor group.

Then, you’re just stuck with your losses, as with any other bad investment.

Examples of crypto pump and dump schemes

Because crypto pump and dump schemes are so common, examples are plentiful. Here are just a few of the largest cases alleging pump and dump price manipulation of new coins:

  • Eight men who ran the Atlas Discord channel were charged with conspiracy to commit securities fraud by the Dept. of Justice in December 2022 for running pump and dump schemes that allegedly netted the group $114 million. The DOJ alleges the group amassed a following of 1.5 million on Twitter and used the platform to hype various coin offerings with what the DOJ alleges was false and misleading information. The men then reaped profits by dumping the coins, leaving other investors with worthless holdings.
  • Two companies involved with the Dignity (DIG) cryptoasset were sued by the SEC in Sept. 2022. Bermuda-based Arbitrade and Cryptobontix in Canada stand accused along with their principal officers of false statements that temporarily inflated the price of DIG. Company officers announced they had acquired $10 billion in gold bullion as reserves against DIG, but the SEC alleges the purchase was a sham transaction intended to temporarily boost DIG’s price. The companies’ officers sold $36.8 million of DIG before the price collapsed.

When celebrity endorsements drive the pump

Celebrities sometimes play a critical role in promoting ICOs. Celebrity endorsements impress investors who are fans and lend an appearance of legitimacy to the coins they promote. Two major recent lawsuits name celebrities involved in alleged pump and dump schemes:

  • Kim Kardashian is among the celebs who are the focus of a class-action lawsuit filed by investors in EthereumMax (EMAX) in early 2022. After Kardashian and others promoted EMAX to their large social-media audiences, the project’s founders cashed out and the value of EMAX cratered. EMAX saw over $112 million in trading volume as it spiked for a couple of days in May 2021, before quickly crashing to become thinly traded and essentially worthless.
  • Elon Musk was sued for $258 billion in mid-2022 by a Dogecoin investor. In the suit, Musk is accused of touting Dogecoin to inflate the price even though he knew the crypto was worthless, only to later let the price collapse.

    Dogecoin peaked at about 74 cents in May 2021 before quickly crashing to less than half that value. In early 2023, the coin traded at less than 9 cents. In April 2023, Musk asked that the lawsuit be tossed out, characterizing his tweets about the coin as frivolous.

Whether they involve celebrity endorsements or not, pump and dump schemes continue to cause large losses for investors who aren’t in on the scam.

5 Warning signs of a pump and dump scheme

As a crypto investor, how can you spot a pump and dump scheme? Here are the classic red flags to watch for:

  1. A rapidly spiking coin price. Generally, the value of a digital asset doesn’t suddenly triple in value soon after its debut. That’s a sign of price manipulation.
  2. Promises of guaranteed or unusually high returns. Remember, nothing is guaranteed in the world of investing.
  3. A low rating. There are many organizations such as Token Sniffer in crypto that rate the trustworthiness of specific coins–look for ratings on the ones you’re thinking about buying. Coins that are part of a pump and dump scam almost all have low ratings.
  4. Honeypot code. Learn to detect malicious code in smart contracts. Honeypot code that prevents the sale of a coin is considered a sure sign of a pump and dump scheme.
  5. Lack of transparency. You should be able to find detailed information about any new coin offering and the leadership behind it. Stay away if you can’t.

Don’t fall for a pump and dump scheme

Here are ways that you can avoid being victimized in a pump and dump scheme:

  • Don’t trade in ICOs. Stick with well-known, popular coins rather than buying new offerings.
  • Avoid thinly traded coins. These coins are illiquid and easily manipulated, so be sure to check the trading volume of any coin you’re interested in.
  • Don’t buy because of a price spike. Remember, by the time you see the spike, the investors who drove the price up are probably already cashing out, and the crash is around the corner.
  • View tips in social media skeptically. Don’t buy crypto based on one comment you saw on Discord or Telegram. Do your own research.
  • Don’t use obscure platforms. Know the reputation of the platform where a coin is trading before you use it. Good platforms have strong documentation about how they operate, large numbers of participants, and substantial daily trading volume.

Given how ubiquitous crypto pump and dump schemes are, educating yourself is the first line of defense. For more on how to keep yourself safe on the blockchain, see our Smart User’s Essential Web3 Security Guide.

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