What is a Pump and How is it Made?
One of the terms frequently heard in the cryptocurrency market is pump. Pump refers to the rapid rise of the cryptocurrency price in a short period of time, contrary to routine market movements. Pump usually happens when a group of investors buys a large amount of a particular cryptocurrency. In this way, the supply-demand balance of the cryptocurrency changes and the price increase is triggered.
The purpose of pumping is to raise the price of the cryptocurrency to encourage other investors to buy, and then sell at a higher price to make a profit. Groups that pump are usually organized through social media, messaging apps or websites and buy simultaneously within a certain time frame. In this way, they try to manipulate the market.
Is it legal to pump?
Pumping is not a legal activity in the cryptocurrency market. Pump means artificially inflating prices and misleading other investors by disrupting the natural flow of the market. Therefore, the pump is problematic both ethically and legally. Groups that pump may face charges of market fraud.
What are the risks of making a pump?
Pumping carries great risks for both pumping groups and other investors. Pumping groups may make a loss if they cannot sustain the price increase. In addition, if the liquidity of the cryptocurrency they are pumping is low, they may have a hard time selling. Other investors, on the other hand, may encounter a sudden drop in prices if they want to join the pump or buy after the pump. This can lead to serious losses.
What should we do instead of pumping?
Instead of pumping, here are some tips for investing in the cryptocurrency market in a healthy and sustainable way. These are:
- To perform fundamental analysis and technical analysis when choosing cryptocurrencies. Examining factors such as the project, team, vision, business model, partnerships, competitive advantages behind the cryptocurrency and following the price movements on graphs.
- To follow market news and developments. The cryptocurrency market is a very dynamic and volatile one. Being aware of all kinds of news and developments that may affect the market is important to seize opportunities or prevent risks.
- Acting on logic, not emotions. In the cryptocurrency market, emotions such as panic, fear, and greed can negatively affect investment decisions. For this reason, it is necessary to act according to logic and strategy, not emotions.
- To do risk management. There is always risk in the cryptocurrency market. In order to minimize the risk, it is necessary to diversify the portfolio, use stop-loss and take-profit orders, determine the investment budget and be ready to lose.