The United States' Commodity Futures Trading Commission (CFTC) has warned crypto investors to be wary of where they put their money as pump-and-dump-scams abound in the world of virtual currencies.
In a statement issued on Thursday, the commission advised crypto investors to avoid these schemes.
"Customers should not purchase virtual currencies, digital coins, or tokens based on social media tips or sudden price spikes. Thoroughly research virtual currencies, digital coins, tokens, and the companies or entities behind them in order to separate hype from facts", it said.
Pump-and-dump-schemes are frauds that introduce a virtual token (or crypto coin) with false reports of impending breakthroughs and fake promises of huge returns on investment.
As interest (and investment) in this new coin increases, its share price starts rising. When the prices reach a certain point, the fraudsters would dump their remaining shares, the prices would crash, and investors will be left holding nearly worthless stock.
According to the statement, these types of schemes have been around for a long time and have now proliferated social media, hyping fake altcoins to entice naive investors.
But how can you avoid these pump-and-dump schemes?
- Thoroughly research any altcoin you want to put your money into.
- Don’t purchase digital coins or tokens because of a single tip, especially if it the source is social media.
- Don’t believe ads or websites that promise quick wealth by investing in certain digital coins or tokens.
- There is no such thing as a guaranteed investment or trading strategy. If someone tells you there is no risk of losing money, do not invest.
You have been warned, long-term investors should avoid get the rich quick mentality of many crypto projects, and stick with Bitcoin as it will probably be the only coin still with us in 10 years.