There is something that happens in the world of cryptocurrency quite often known as a “pump and dump.” In this scenario, what we would call “big money” or “big influence” organizes a community or multiple communities that plan scheduled buy times and sell targets. By coordinating a sudden mass increase in volume to a low liquid coin pair, price often skyrockets or “pumps” as the once ill-liquid pair suddenly is filled with buy orders. Once the pump is observed by “outsiders” (people outside of these pump and dump communities) it is further fueled by retail trading volume. Once the pump goal is met, the groups that orchestrated the pump agree to pull their funds out simultaneously for profits, resulting in the “dump.” This is simple manipulation of supply and demand. If there is little demand for a coin or asset then the price will be relatively low. Once demand of an asset starts to increase, so does the price.
We have seen multiple events this week that have brought in major retail volume to some lesser known cryptocurrencies. Recent tweets from high profile celebrities like Elon Musk have fueled the pump in the increasingly popular cryptocurrency Dogecoin. At a time of major price action confluence in leading cryptocurrency projects like Bitcoin and Ethereum, it’s mind boggling to see a coin like DOGE blow up over 700% on most exchanges. The coin’s meteoric rise has no doubt amassed many traders a fortune in a very short amount of time. The problem with this is – some people don’t know when to throw in the towel and cash out. Money is lost as quickly as it is gained in these scenarios, often leaving the retail investor in a deficit.
Popular social media accounts are paving the way for mainstream cryptocurrency adoption. The number of times #bitcoin was tweeted has doubled in recent reports and #dogecointo1dollar hashtags peaked at over 2,000 tweets in one hour. Also worth the mention, Elon musk changed his Twitter heading to simply “#bitcoin” in the early morning hours yesterday. Following the change of Elon’s header information, Bitcoin pumped 18% on most exchanges. It’s safe to assume that social media profiles are increasing awareness to the cryptocurrency communities.
Social media influencer and billionaire Justin Sun took to Twitter yesterday saying (sic) “$TRX officially on #wallstreetbets group. #TRON”. He later tweeted (sic) “#wallstreetbets whale: SPREAD THE NEWS, $TRX —> (moon emoji) #TRON”. After these two tweets from Justin “Pump God” Sun, TRX shot up 40%. It seems as though as the world wakes up to cryptocurrency, they do so in waves fueled by social media.
All of the hype that got poured into DOGE came from an overflow of angry redditors who accidentally participated in one of the biggest pump and dump schemes to date. By forming a community on Reddit, a few retail traders were able to start a chain of planned trading against major hedge funds. The community’s movement attracted hundreds of thousands of fresh retail investors to help pump the price of GameStop shares. When stock exchanges and stock brokers closed their doors to traders, many ventured into the waters of crypto currency. Following the trends we quoted earlier, a lot of new traders dove headfirst into dogecoin as their first crypto investment.
While it is uncertain what the future holds for some cryptocurrency projects like DOGE one thing is certain: We have only just begun to see the rise in demand for cryptocurrency. After the wake of the recent stock exchange restrictions, the world is starting to realize that there is a need for a decentralized means of exchanging value. There are a number of things that will affect a coins volatility like coin supply, trading volume, and news/media manipulation. In the end, supply and demand determines the market movements. There’s plenty of high quality projects in existence that still have many moons to come.
There are thousands of people creating exchange accounts each day in the hopes to make a quick buck on trending cryptocurrencies. Most of these new users are doing so without doing much research or technical analysis. If you’re new and looking to expand your knowledge of cryptocurrency trading, click here to get started with Crypto University.
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Written by: Edward Gonzales © Crypto University 2021