One risk cryptocurrency investors face are pump and dump schemes, and scammers posing as Walmart using a falsified news release did just that on Monday, sending Litecoin surging 25%; How to avoid scams such as these.
Fake news coming from a verified Litecoin Twitter account made an announcement on Monday that it had made a partnership with Walmart in the retail giant would begin accepting Litecoin as payment for online purchases. The link then appeared on the press release service GlobeNewswire and, from there, a number of major media organizations parroted the announcement.
The false report sent Litecoin surging by 25 percent.
The news reached Walmart, who informed the press release was not authentic and GlobeNewswire issued a “notice to disregard” at around 11:18 AM ET on Monday, CNBC reported.
But before the correction, several billions of dollars of Litecoin changed hands, according to the online trading platform Coinbase.
An hour after that announcement, the price of Litecoin fell from over $220 back to $178, about the trading price before the false report came out, CNN reported.
Pump and dump is a scheme where people by a particular asset, drive up the price, typically with fake news or other methods of hype, such as statements by influencers. Once the price begins soaring, they sell the falsely overpriced asset at a higher price, leaving investors with an asset that is not worth what they purchased it at.
Pump and dump is not just used with cryptocurrency, but for stocks as well, where it is considered a securities scam.
However, as new cryptocurrencies are constantly coming on the market, one must be cautious when investing in newcomers. Cryptocurrencies such as Bitcoin, Etherereum, and Dogecoin are now well-established cryptocurrencies, and crypto fans believe these three are the future of currency for the globe.
CNET reports that it takes an influencer with the following of Elon Musk to increase or decrease their value. Musk claims he “pumps, but doesn’t dump.”
By their very nature, cryptocurrencies are volatile. The Soko directory advises not to focus on today’s prices. Rather, research whether the currency is considered to be something of value and is growing its investment base.
After the time of this writing, there were over 1600 digital currencies and coins, according to science direct. Research any currency or coin to understand what you are buying and how it works. Further, check into the person or people behind the currency/coin. Lastly, determine what the coin’s purpose is.
It is important to understand blockchain, the technology behind cryptocurrencies, which will further help you to understand what is happening in the field.
Try to use currencies/coins with the least volatility, while avoiding those with high volatility. As with any type of investment, never take on more risk than you can afford.