Pump and Dump Schemes - How to Spot and Avoid Investment Scams

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Pump and Dump Schemes - How to Spot and Avoid Investment Scams

Learn everything about pump and dump schemes and how to identify it, in this descriptive guide.

Token Metrics Team

7 Minutes

As the world of finance continues to evolve, new and innovative investment opportunities have emerged. However, alongside these opportunities come potential risks and scams.

One such scam that has become increasingly prevalent is the "pump and dump" scheme. In this article, we'll discuss what a pump and dump scheme is, how to spot it, and how to avoid falling victim to such investment scams.

What is Pump and Dump?

Pump and dump is a type of investment fraud used in the financial market where one or more people intentionally raise the price of a stock, crypto or other financial assets by disseminating false or deceptive information to lure investors.

Once the price has increased to the desired level, these manipulators sell their shares at a profit, leading to a decrease in price, and leaving innocent investors with securities that are either worthless or overpriced.

How Does the Pump and Dump Scheme Work?

The mechanics of a pump and dump scheme works by manipulating microcap assets, such as penny stocks or cheap cryptos, which are companies with a small market capitalization. These assets are usually traded at a very low price, and do not follow strict requirements for public listing.

Therefore, scammers can easily manipulate information about these assets. The lack of publicly available information provides fraudsters with favorable conditions since potential investors lack the necessary sources to verify all the information about a company and management.

Moreover, microcap assets are highly illiquid and have very low trading volume. As a result, even small transactions can significantly boost the asset price.

The fraudster typically starts by buying a large number of shares in that type of micro cap asset, then spreading false information about the company through various channels, such as social media, chat rooms, and email newsletters.

Once the price of the asset has been artificially inflated, the fraudsters will begin selling their holdings, realizing significant profits. As the scheme is uncovered, the price of the asset typically plummets, leaving unsuspecting investors with significant losses.

Types of Pump and Dump Schemes

There are several types of pump and dump schemes in financial world, including:

Pre-arranged pump and dump: A group of fraudsters will agree to buy a particular asset simultaneously, creating an artificial demand and price surge. Once the price has reached a certain level, the fraudsters will sell their holdings, causing the price to crash.

Social media pump and dump: Fraudsters will use social media platforms to spread false information and create hype around a particular cryptocurrency, stocks or any other asset, encouraging investors to buy. Once the price has been inflated, the fraudsters will sell their holdings.

Exchange-based pump and dump: Fraudsters will use exchanges with low liquidity to create artificial demand for a particular asset, causing the price to surge. Once the fraudsters have sold their holdings, the price typically crashes.

Role of Social Media in Pump and Dump Schemes

Social media plays a significant role in pump and dump schemes as it allows individuals to disseminate false or misleading information about a stock or cryptocurrency quickly and easily to a large audience.

Scammers may create fake social media profiles or use existing ones to promote the cryptocurrency or digital asset and spread positive news about it, encouraging others to invest. They may also use social media to organize groups of investors to buy and sell the asset at specific times to manipulate its price.

Social media platforms such as Twitter and Telegram are popular channels for these activities. Investors must be cautious and verify the accuracy of information before making investment decisions based on social media posts or messages.

Pump and Dump Examples

Here are some real-life examples of crypto pump and dump schemes:

Verge - In April 2018, the cryptocurrency Verge experienced a sudden price increase of over 300% in just a few hours. The price increase was caused by a group of individuals who coordinated a pump and dump scheme on social media platforms. The group created false hype around the cryptocurrency, which caused a massive influx of investors who were looking to get rich quickly.

Soon after the scheme was executed, the value of the cryptocurrency dropped sharply, resulting in substantial losses for investors who failed to dispose of their holdings promptly.

Dogecoin - Dogecoin is a cryptocurrency that was created as a joke in 2013 but gained a significant following due to its popularity on social media. In 2021, a group of individuals on Reddit coordinated a pump and dump scheme on Dogecoin, causing its value to increase significantly in a very short span of time.

The group created a social media campaign that encouraged investors to buy and hold Dogecoin, which caused its value to skyrocket. However, as with all pump and dump schemes, the value of the cryptocurrency eventually plummeted, causing significant losses for investors who were not able to sell their holdings in time.

How to Spot Pump and Dump?

There are several warning signs that investors can look for to spot a pump and dump scheme -

High-pressure sales tactics - Fraudsters often use high-pressure sales tactics to convince investors to buy into a stock or crypto quickly before the price goes up. They may use language such as "this is a once-in-a-lifetime opportunity" or "you don't want to miss out on this."

Unsolicited investment advice - Be wary of unsolicited investment advice from people you don't know, especially if it comes in the form of an email or social media message. Fraudsters may pose as legitimate investment advisors or insiders and offer tips on assets that are "about to take off."

Huge price swings - If you see a stock that is experiencing huge price swings with no apparent reason, this could be a sign of a pump and dump scheme.

Lack of information - If you can't find any information about a company or its products, this could be a red flag. Pump and dump fraudsters often create shell companies or use obscure assets to make it difficult for investors to do their due diligence.

Misleading information - Be skeptical of any information that seems too good to be true. Pump and dump fraudsters often make false or misleading statements about a company's financial health, products, or industry.

How to Avoid Pump and Dump Schemes?

Here are some tips for avoiding pump and dump investment scams:

Do your research - Before investing in any stock, crypto or other asset, do your research. Read the company's annual report, financial statements, and news articles about the company.

Be skeptical - If an investment opportunity seems too good to be true, it probably is. Be skeptical of high-pressure sales tactics, unsolicited investment advice, and promises of guaranteed returns.

Avoid small-cap cryptocurrencies or assets - Investors should be wary of investing in small-cap cryptocurrencies or assets, particularly those with low liquidity.

Use stop-loss orders - Investors can use stop-loss orders to automatically sell their holdings if the price of the cryptocurrency or assets falls below a certain level.

Diversify your portfolio - Don't put all your eggs in one basket. Diversify your portfolio by investing in a variety of stocks, bonds, cryptos and other assets. This will help minimize your risk and protect you from losses.

Use a reputable trading platform - When buying or selling assets, use a reputable trading platform only. Check the platform's credentials and make sure they are trusted, widely used and legally registered.

Is Pump and Dump illegal?

Yes, the pump and dump scheme is illegal as it involves the intentional manipulation of the price of assets through false or misleading information. This scheme is a violation of securities laws in many jurisdictions and can result in serious legal consequences for those who participate in it.

In addition to legal repercussions, individuals who fall victim to the pump and dump scheme can suffer significant financial losses. It is essential for investors to be aware of the risks associated with this fraudulent activity and to exercise caution when investing in cryptocurrencies.

The Bottom Line

In conclusion, the pump and dump scheme is a fraudulent trading strategy that manipulates the price of financial assets by artificially inflating its value resulting in illegal profits for a select group of individuals.

It is important for investors to be cautious, while making investment related decisions in the stocks, cryptos and digital assets. Since these assets can be volatile and unpredictable.

Disclaimer

The information provided on this website does not constitute investment advice, financial advice, trading advice, or any other sort of advice and you should not treat any of the website's content as such.

Token Metrics does not recommend that any cryptocurrency should be bought, sold, or held by you. Do conduct your own due diligence and consult your financial advisor before making any investment decisions.

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Crypto Trading Signals API: Put Bullish/Bearish Calls Right in Your App

Token Metrics Team

Timing makes or breaks every trade. The crypto trading signals API from Token Metrics lets you surface bullish and bearish calls directly in your product—no spreadsheet wrangling, no chart gymnastics. In this guide, you’ll hit the /v2/trading-signals endpoint, display actionable signals on a token (e.g., SOL, BTC, ETH), and ship a conversion-ready feature for bots, dashboards, or Discord. Start by creating a key on Get API Key, then Run Hello-TM and Clone a Template to go live fast.

What You’ll Build in 2 Minutes

A minimal script that fetches Trading Signals via /v2/trading-signals for one symbol (e.g., SOL).
A copy-paste curl to smoke-test your key.
A UI pattern to render signal, confidence/score, and timestamp in your dashboard or bot.

Endpoints to add next

/v2/hourly-trading-signals (intraday updates)
/v2/resistance-support (risk placement)
/v2/tm-grade (one-score view)
/v2/quantmetrics (risk/return context)

Why This Matters

Action over analysis paralysis. Traders don’t need more lines on a chart—they need an opinionated call they can automate. The trading signals API compresses technical momentum and regime reads into Bullish/Bearish events you can rank, alert on, and route into strategies.

Built for dev speed and reliability. A clean schema, predictable performance, and straightforward auth make it easy to wire signals into bots, dashboards, and community tools. Pair with short-TTL caching or webhooks to minimize polling and keep latency low.

Where to Find

You can find the cURL request for Crypto Trading Signals in the top right corner of the API Reference. Use it to access the latest signals!

Live Demo & Templates

Trading Bot Starter: Use Bullish/Bearish calls to trigger paper trades; add take-profit/stop rules with Support/Resistance.
Dashboard Signal Panel: Show the latest call, confidence, and last-updated time; add a history table for context.
Discord/Telegram Alerts: Post signal changes to a channel with a link back to your app.

How It Works (Under the Hood)

Trading Signals distill model evidence (e.g., momentum regimes and pattern detections) into Bullish or Bearish calls with metadata such as confidence/score and timestamp. You request /v2/trading-signals?symbol=<ASSET> and render the most recent event, or a small history, in your UI.

For intraday workflows, use /v2/hourly-trading-signals to update positions or alerts more frequently. Dashboards typically use short-TTL caching or batched fetches; headless bots lean on webhooks, queues, or short polling with backoff to avoid spiky API usage.

Production Checklist

Rate limits: Know your tier caps; add client-side throttling and queues.
Retries/backoff: Exponential backoff with jitter; treat 429/5xx as transient.
Idempotency: Guard downstream actions (don’t double-trade on retries).
Caching: Memory/Redis/KV with short TTLs for reads; pre-warm popular symbols.
Webhooks & jobs: Prefer webhooks or scheduled workers for signal change alerts.
Pagination/Bulk: Batch symbols; parallelize with care; respect limits.
Error catalog: Map common 4xx/5xx to clear fixes; log request IDs.
Observability: Track p95/p99 latency, error rate, and alert delivery success.
Security: Keep keys in a secrets manager; rotate regularly.

Use Cases & Patterns

Bot Builder (Headless): Route Bullish into candidate entries; confirm with /v2/resistance-support for risk and TM Grade for quality.
Dashboard Builder (Product): Add a “Signals” module per token; color-code state and show history for credibility.
Screener Maker (Lightweight Tools): Filter lists by Bullish state; sort by confidence/score; add alert toggles.
Community/Discord: Post signal changes with links to token pages; throttle to avoid noise.
Allocator/PM Tools: Track signal hit rates by sector/timeframe to inform position sizing (paper-trade first).

Next Steps

Get API Key — create a key and start free.
Run Hello-TM — confirm your first successful call.
Clone a Template — deploy a bot, dashboard, or alerting tool today.

FAQs

1) What does the Trading Signals API return?

A JSON payload with the latest Bullish/Bearish call for a symbol, typically including a confidence/score and generated_at timestamp. You can render the latest call or a recent history for context.

2) Is it real-time? What about latency/SLOs?

Signals are designed for timely, programmatic use with predictable latency. For faster cycles, use /v2/hourly-trading-signals. Add caching and queues/webhooks to reduce round-trips.

3) Can I use the signals in a live trading bot?

Yes—many developers do. A common pattern is: Signals → candidate entry, Support/Resistance → stop/targets, Quantmetrics → risk sizing. Always backtest and paper-trade before going live.

4) How accurate are the signals?

Backtests are illustrative, not guarantees. Treat signals as one input in a broader framework with risk controls. Evaluate hit rates and drawdowns on your universe/timeframe.

5) Do you provide SDKs and examples?

You can integrate via REST using JavaScript and Python snippets above. The docs include quickstarts, Postman collections, and templates—start with Run Hello-TM.

6) Polling vs webhooks for alerts?

Dashboards often use cached polling. For bots/alerts, prefer webhooks or scheduled jobs and keep retries idempotent to avoid duplicate trades or messages.

7) Pricing, limits, and enterprise SLAs?

Begin free and scale as you grow. See API plans for allowances; enterprise SLAs and support are available.

Research

Fundamental Grade Crypto API: Real Crypto Fundamentals in One Score

Token Metrics Team

Most traders chase price action; Fundamental Grade Crypto API helps you see the business behind the token—community traction, tokenomics design, exchange presence, VC signals, and DeFi health—consolidated into one score you can query in code. In a few minutes, you’ll fetch Fundamental Grade, render it in your product, and ship a due-diligence UX that drives trust. Start by grabbing your key at the Get API Key page, Run Hello-TM to verify your first call, then Clone a Template to go live fast.

What You’ll Build in 2 Minutes

A minimal script to fetch Fundamental Grade from /v2/fundamental-grade for any symbol (e.g., BTC).

Optional curl to smoke-test your key in seconds.
A drop-in pattern to display the grade + key drivers in dashboards, screeners, and research tools.

Endpoints to consider next

/v2/tm-grade (technical/sentiment/momentum)
/v2/price-prediction (scenario planning)
/v2/resistance-support (risk levels)
/v2/quantmetrics (risk/return stats)

Why This Matters

Beyond price, toward quality. Markets are noisy—hype rises and fades. Fundamental Grade consolidates hard-to-track signals (community growth, token distribution, liquidity venues, investor quality, DeFi integrations) into a clear, comparable score. You get a fast “is this worth time and capital?” answer for screening, allocation, and monitoring.

Build trust into your product. Whether you run an investor terminal, exchange research tab, or a portfolio tool, Token Metrics discovery helps users justify positions. Pair it with TM Grade or Quantmetrics for a balanced picture: what to buy (fundamentals) and when to act (signals/levels).

Where to Find

The Fundamental Grade is easily accessible in the top right of the API Reference. Grab the cURL request for seamless access!

Ready to build?

Get API Key — generate a key and start free.
Run Hello-TM — verify your first successful call.
Clone a Template — deploy a screener or token page today.

Watch the demo: VIDEO_URL_HERE. Compare plans: Scale confidently with API plans.

FAQs

1) What does the Fundamental Grade API return?

A JSON payload with the overall score/grade plus component scores (e.g., community, tokenomics, exchange presence, VC backing, DeFi health) and timestamps. Use the overall grade for ranking and component scores for explanations.

2) How fast is the endpoint? Do you publish SLOs?

The API is engineered for predictable latency. For high-traffic dashboards, add short-TTL caching and batch requests; for alerts, use jobs/webhooks to minimize round-trips.

3) Can I combine Fundamental Grade with TM Grade or signals?

Yes. A common pattern is Fundamental Grade for quality filter + TM Grade for technical/sentiment context + Trading Signals for timing and Support/Resistance for risk placement.

4) How “accurate” is the grade?

It’s an opinionated synthesis of multiple inputs—not financial advice. Historical studies can inform usage, but past performance doesn’t guarantee future results. Always layer risk management and testing.

5) Do you offer SDKs and examples?

You can use REST directly (see JS/Python above). The docs include quickstarts, Postman, and ready-to-clone templates—start with Run Hello-TM.

6) Polling vs webhooks for fundamentals updates?

For UI pages, cached polling works well. For event-style notifications (upgrades/downgrades), prefer webhooks or scheduled jobs to avoid spiky traffic.

7) What about pricing, limits, and enterprise SLAs?

Begin free and scale as you grow. See API plans for allowances; enterprise SLAs and support are available—contact us.

Research

Fundamental Grade Crypto API: Invest with Conviction Using Real Project Signals

Token Metrics Team

Most traders chase price action; Fundamental Grade Crypto API helps you see the business behind the token—community traction, tokenomics design, exchange presence, VC signals, and DeFi health—consolidated into one score you can query in code. In a few minutes, you’ll fetch Fundamental Grade, render it in your product, and ship a due-diligence UX that drives trust. Start by grabbing your key at the Get API Key page, Run Hello-TM to verify your first call, then Clone a Template to go live fast.

What You’ll Build in 2 Minutes

A minimal script to fetch Fundamental Grade from /v2/fundamental-grade for any symbol (e.g., BTC).

Optional curl to smoke-test your key in seconds.
A drop-in pattern to display the grade + key drivers in dashboards, screeners, and research tools.

Endpoints to consider next:

/v2/tm-grade (technical/sentiment/momentum)
/v2/price-prediction (scenario planning)
/v2/resistance-support (risk levels)
/v2/quantmetrics (risk/return stats)

Why This Matters

Beyond price, toward quality. Markets are noisy—hype rises and fades. Fundamental Grade consolidates hard-to-track signals (community growth, token distribution, liquidity venues, investor quality, DeFi integrations) into a clear, comparable score. You get a fast “is this worth time and capital?” answer for screening, allocation, and monitoring.

Build trust into your product. Whether you run an investor terminal, exchange research tab, or a portfolio tool, Fundamental Grade lets users justify positions. Pair it with TM Grade or Quantmetrics for a balanced picture: what to buy (fundamentals) and when to act (signals/levels).

Where to Find The Fundamental Grade

The Fundamental Grade is easily accessible in the top right of the API Reference. Grab the cURL request for seamless access!

Build Smarter Crypto Apps & AI Agents with Token Metrics

Token Metrics provides real-time prices, trading signals, and on-chain insights all from one powerful API. Grab a Free API Key

How It Works (Under the Hood)

Fundamental Grade aggregates multiple project-quality signals into a normalized score and label (e.g., Strong / Average / Weak). Typical sub-signals include:

Community: momentum across channels (dev activity/user traction signals where applicable).
Tokenomics: supply schedule, distribution, unlock dynamics, incentives.
Exchange Presence: venue coverage, depth/liquidity proxies.
VC/Investor Signals: quality/durability of backing and ecosystem support.
DeFi Health: integrations, TVL context, composability footprint.

At query time, you call /v2/fundamental-grade with a symbol; responses include the overall score plus component scores you can visualize. For dashboards with many assets, batch fetches and short-TTL caching keep pages responsive. If you push alerts (e.g., “Fundamental Grade upgraded”), prefer webhooks or queued jobs to avoid hammering the API.

Production Checklist

Rate limits: Know plan caps; add client throttling and request queues.
Retries/backoff: Exponential backoff + jitter; surface actionable error messages.
Idempotency: Prevent duplicate downstream actions on retried calls.
Caching: Use memory/Redis/KV with short TTLs; pre-warm popular symbols.
Webhooks & jobs: For alerts, use signed webhooks or scheduled jobs; log delivery outcomes.
Pagination/Bulk: When covering many tokens, paginate or process in batches.
Error catalog: Map 4xx/5xx to user-visible fixes; log request IDs.
Observability: Track p95/p99 and error rate per endpoint; alert on spikes.
Security: Keep API keys in secrets managers; rotate regularly.

Use Cases & Patterns

Screener Maker: Rank tokens by Fundamental Grade, filter by market cap/sector, and add “rising fundamentals” badges for discovery.
Dashboard Builder: On each token page, show the headline grade with a component chart; link to methodology for transparency.
Research & PM Tools: Flag downgrades/upgrades to prompt re-evaluation; attach notes to component changes (e.g., DeFi health drop).
Allocator / Risk: Require a minimum Fundamental Grade before inclusion; rebalance only when grade crosses thresholds.
Community/Discord: Post weekly upgrades as digest messages with links back to your app.

Next Steps

Get API Key — generate a key and start free.
Run Hello-TM — verify your first successful call.
Clone a Template — deploy a screener or token page today.
Watch the demo: VIDEO_URL_HERE
Compare plans: Scale confidently with API plans.

FAQs

1) What does the Fundamental Grade API return?

2) How fast is the endpoint? Do you publish SLOs?

The API is engineered for predictable latency. For high-traffic dashboards, add short-TTL caching and batch requests; for alerts, use jobs/webhooks to minimize round-trips.

3) Can I combine Fundamental Grade with TM Grade or signals?

Yes. A common pattern is Fundamental Grade for quality filter + TM Grade for technical/sentiment context + Trading Signals for timing and Support/Resistance for risk placement.

4) How “accurate” is the grade?

5) Do you offer SDKs and examples?

You can use REST directly (see JS/Python above). The docs include quickstarts, Postman, and ready-to-clone templates—start with Run Hello-TM.

Token Metrics Media LLC is a regular publication of information, analysis, and commentary focused especially on blockchain technology and business, cryptocurrency, blockchain-based tokens, market trends, and trading strategies.

Token Metrics Media LLC does not provide individually tailored investment advice and does not take a subscriber’s or anyone’s personal circumstances into consideration when discussing investments; nor is Token Metrics Advisers LLC registered as an investment adviser or broker-dealer in any jurisdiction.

Information contained herein is not an offer or solicitation to buy, hold, or sell any security. The Token Metrics team has advised and invested in many blockchain companies. A complete list of their advisory roles and current holdings can be viewed here: https://tokenmetrics.com/disclosures.html/

Token Metrics Media LLC relies on information from various sources believed to be reliable, including clients and third parties, but cannot guarantee the accuracy and completeness of that information. Additionally, Token Metrics Media LLC does not provide tax advice, and investors are encouraged to consult with their personal tax advisors.

All investing involves risk, including the possible loss of money you invest, and past performance does not guarantee future performance. Ratings and price predictions are provided for informational and illustrative purposes, and may not reflect actual future performance.

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