I just looked back at some historical pump and dump cases in the crypto market, and this phenomenon is something that new investors really need to understand to avoid getting "scammed."

Simply put, a pump occurs when a large group of investors (commonly called "whales") concentrate on buying a significant amount of low-priced, little-known coins, creating artificial demand. The price suddenly surges, trading volume skyrockets, and this draws a lot of attention from the community. But this is only the beginning of the story.

After the price has been pumped up sufficiently, those executing this strategy will start selling all or a large portion of the coins they bought — this is when the "dump" happens. The price drops rapidly, returning to the original level or even lower. Investors who bought at the peak become victims; they are forced to sell at a loss to salvage what's left of their capital.

I remember a clear case with the coin Tierion (TNT) in May 2020. Its price rose from $0.05 to $0.11 in a few days — an increase of over 45% — but just 10 days later, it plummeted to $0.03, lower than the initial price. At that time, there was no positive news about the project, only rumors on Facebook. This clearly demonstrates a typical pump strategy.

Why does a pump happen? There are several main reasons. First, whales hold enormous amounts of capital, allowing them to easily manipulate retail investors’ psychology. Second, the FOMO (fear of missing out) mentality is very strong in crypto — when prices rise, everyone fears missing the chance to profit quickly. Third, the crypto market still lacks specific regulations, unlike traditional stock markets which have investor protection measures. Lastly, ICO activities also provide opportunities for whales to inflate prices.

The process usually unfolds in three steps. First, large investors accumulate a big amount of coins when prices are very low. Next, they create forums and fake social media comments to stimulate FOMO, encouraging others to buy in. Finally, when the price reaches a certain high point, they sell all their holdings to make a profit.

How to recognize a pump strategy in progress? Pay attention if a coin’s price suddenly jumps within a few hours or days without any clear reason. If it suddenly appears on reputable forums or is mentioned by celebrities who previously paid no attention, that’s also a warning sign. Especially if a small-cap coin unexpectedly becomes a hot topic on social media.

How to avoid it? I have some tips. Before investing in any coin, thoroughly research the project — the development team, real-world applications, partnerships. Never let herd mentality influence your decisions, as there are always better investment opportunities elsewhere. Manage your risks effectively by setting appropriate capital allocation before trading. And most importantly, prioritize investing in large-cap coins with high market capitalization, trustworthy teams, and long track records — this will significantly reduce your risks.

Understanding how pump works and recognizing its signs is the first step to protecting your assets in the crypto market. It’s not just a personal issue but also impacts the stability of the entire market. By being cautious, managing risks well, and avoiding getting caught up in hype, you can participate in crypto investing more safely and effectively.