Pump-and-dumps have become the cause of nightmares for investors and traders in crypto. A pump and dump is a type of scam that usually occurs when a bunch of large investors, or ‘whales’ as they are called, start pouring money into a particular asset, thereby pushing the price of the asset unexpectedly high. Seeing the asset climbing up the charts, many other small investors follow suit and start investing in the same asset.

When enough wealth has been locked into the asset, investors with huge investments suddenly start selling their shares for a hefty profit. As a result, the asset price plummets suddenly, leaving other investors in shock and with significant losses. This is how a pump and dump typically occur.

Cryptocurrencies are highly volatile, and the recent collapse of FTX has raised concerns among the investor community. This has further led to discussions on the need for some preventive measures to protect small investors from such nefarious plans. An anti-dumping policy can be a potential measure to save investors from landing in such troubles. Let us take a closer look at what an anti-dumping policy is and how it works.

Also Read: Bitcoin, Ethereum down over 1% as cryptocurrencies extend losses

What is the anti-dumping policy and how can it work for cryptocurrencies?

Along with the crypto market, dumping has also been frequent in the international stock market. Pump and dumps are potential scams that cripple investor sentiment. It has wreaked havoc on cryptocurrencies frequently.

Meanwhile, an anti-dumping policy can be introduced to avoid such mishaps. The policy can be structured to include some regulation regarding the prohibition of buying or selling large sums of tokens in a single transaction, limiting total supply orders, imposing restrictions in terms of value, introducing daily limits or price-caps if possible, etc.

The DrunkDoge coin, for instance, enforces a cooling period of 1/2/6 hours along with increased levels of tax every time after a sale is conducted to prevent any dumping.

The THUNDERCAKE token is also a good example where it is impossible to purchase more than 0.1 percent of the total supply of the tokens. On top of that, the buy orders are restricted from exceeding 0.5 percent of the whole supply of tokens.

Also Read: Binance to commit $1 billion for crypto recovery initiative

What can you do to avoid pumps and dumps?

Maintain strict vigilance: Since dumping remains a constant threat to crypto, it is always imperative for investors to maintain the strictest vigilance before investing in any project.

The SQUID token can be taken as a notable example. The token tanked from $90 to $0.00079 in just a few minutes. However, investigations revealed that the founders of the token were anonymous individuals and did not exist.

Even the whitepaper, website and most of the other documents of the project contained spelling errors in plenty. Although these issues may not always mean that a project is a fraud, it is better to be informed.

Smart Contract Auditing: Smart contract auditing is a clever way to ensure that the project has taken security and safety measures seriously. Nowadays, one can easily hire smart contract auditors online who will review the project on your behalf.

Avoid FOMO: “The Fear of Missing Out”, or FOMO as people call it today, is quite a real thing. Many investors feel they must hurry and get a piece of the pie when the price of digital assets skyrockets. As they jump in on the buying spree, the others follow. This, in turn, acts as a catalyst leading to enormous price hikes followed by eventual decline.

Also Read: Explained: Bank runs and why they spell trouble for crypto exchanges

As an investor or trader, it is always good to have an idea of balance and know the limits. Never invest more than you can lose.

Absence of long-term commitment to projects

Keep an eye out for crypto projects without a well-defined long-term roadmap for the future. A solid crypto project will focus on community building with a purpose and add real value to the project. It will have pre-set goals and a roadmap on how to achieve them.

A project without specificity may end up being a fake or a shill project, and it is better to avoid such tokens before investing in them.

In Conclusion

Although dumping scams are becoming rampant these days, it is always possible to stay aware and plan your moves carefully. Being alert in a volatile market is always necessary. It is also recommended to take the right precautions, avoid FOMO, plan investment strategies, use hardware wallets, and so on.

Disasters like the latest FTX crash would initiate a lot of probing into matters of asset security and lead to better security protocols. The broader crypto market is still in a phase of regulatory speculations. The ideal suggestion now would be to gather knowledge, stay updated and adopt the right preventive measures because the digital assets industry is only in its nascent stages.

Also Read: Cryptocurrency today: Bitcoin above $16,000, Ethereum up 3.3%