Bitcoin, Bitcoin, Bitcoin… everyone is talking Bitcoin these days and this will likely continue well into the future. Why? Well because the new blockchain technology that Bitcoin has brought to the table is something the world has never seen and has incredible potential.
But should you actually invest in this volatile cryptocurrency? Or is Bitcoin a pump and dump with a largely inflated price that could be dumped back down to near zero at any minute? This is a great question to ask before getting involved in the world of Bitcoin and in this post I’ll be going over my take on it all.
The first thing that I think needs to be discussed however is what a pump and dump actually is.
Pump and Dumps… What The Heck Are They?
Pump and dumps are investment schemes where the price of a particular investment is artificially pumped up to extreme amounts, thus leading to a massive overvaluation which is then dumped back down to realistic levels.
There are 2 main groups in a clear-cut pump and dump scheme. There are the early investors that know what is about to happen and buy in before the pump happens, who go out and encourage unsuspecting investors to buy in like crazy. Then there are the unsuspecting investors who buy in more and more at pumped up levels usually due to misleading information.
When the pumpers behind the scheme reach the price levels they want to achieve they pull the carpet out from under everyone. They sell their coins at the extremely over-valuated levels so the unsuspecting investors who are still buying in thinking that the value will continue to rise. Once these pumpers start pulling out the prices crash back down as fast as they went up and all of those unsuspecting investors lose out.
In a nutshell Pump and dumps are price manipulations where those on the inside make good money and the large majority of people lose.
They are illegal in stock trading by the way, but in the largely unregulated cryptocurrency world people get away with them all the time. Shitcoins are popular for pump and dumps because they often are way overhyped and have fairy-tale expectations.
Bitcoin…Pump and Dump?
The pump and dump case for Bitcoin is not very cut and dry. There are plenty of investors willing to throw their money into Bitcoin and plenty of geniuses out there that really do think Bitcoin is going to the moon. If you look at it in this way the price is not inflated at all. But there is the other side to the story that projects Bitcoin as being a useless currency with no real value. If you look at it from this side then yes the price is very inflated.
There is no doubt that there are a lot of people out there encouraging new investors and promoting Bitcoin like madmen. But if these people truly believe in the cryptocurrency then this is not what you would call artificial price inflation. And the truth is that much of the community invested in Bitcoin does believe in its value. I would say most of it by far.
There are lots of believers and true investors/hodlers due to the great new technology technology that Bitcoin has brought to the world. In an overall sense Bitcoin is in no way a pump and dump.
However… There Is Pumping And Dumping Going On Here…
Even though I would not classify Bitcoin as a pump and dump by any means, there are people out there that are actively trying to pump and dump the price. Whether these people actually believe in the currency is not something I know but there is no doubt that price manipulation is very real in this way.
However most of the “pump and dump” situations that I have seen with Bitcoin aren’t orchestrated. For example there was the massive pump of Bitcoin throughout December 2017 up to $20,000 which then crashed the whole way back down to just over $5,000 in a little over a month.
This pump was created largely due to media attention. In this time frame Bitcoin was all over the news and new investors were pouring in. The price kept going up like crazy and people didn’t know if it would ever stop. Then some larger investors started selling off because they felt the price was inflated and the dump began.
Many people made a lot of money here and many people lost a lot of money. But the point is that this doesn’t qualify as a pump and dump scheme. Unless you think that powerful Bitcoin owners paid the media to help pump the price which you could argue.
The More Common Market Manipulation That Goes On
I feel like dumping is much more common than pumping when it comes to Bitcoin. This may sound a bit confusing because with every dump you need a pump at some point right? But you will understand what I mean.
When it comes to pumping a cryptocurreny like Bitcoin with such a massive market valuation it is a daunting task. The only practical way for Bitcoin to pump up is with massive media attention, like it got in the example shown example above. This would take one heck or a massive power and authority to be able to control and orchestrate.
Dumping on the other hand is easy. If you are a big fat whale in the market you are able to manipulate the market by selling off. All you have to do is sell. You already have the Bitcoin in your wallet and now its time to dump it.
When a market mover dumps massive amounts of Bitcoin the price drops a bit, then people panic sell and the price drops more and this continues. Then the whale who sold off their fortune at the top buys back in at the bottom, capitalizing on the manipulation that they just pulled off.
It is very evident that this happens.
What To Take Away From This
There is no doubt that pumping and dumping of Bitcoin occurs. With a cyptocurrency like this no on really knows what its real value is. It is pretty much entirely speculative and there isn’t really anything to base it off of. Because of this there is lots of room for manipulation and inflation/deflation that is not orchestrated by any person or groups of people.
Bitcoin is very volatile and largely because of this. During many of its rises and crashes there is nothing that actually changes about Bitcoin. Bitcoin stays the same and the price swings are all circles around FOMO and FUD.
If you have anything to add to this, an opinion, comment, or question perhaps… you can leave it below and I’ll get back to you soon 🙂