How to Spot and Avoid This Common Crypto Scam
The crypto market offers exciting opportunities—but it’s not without risk. One of the most notorious scams to watch out for is the pump and dump. If you’re new to cryptocurrency, understanding how this scheme works can help you avoid major financial losses.
This article breaks down what pump and dump schemes are, how they work, and what Canadian investors should look out for.
What is a Pump and Dump?
A pump and dump is a coordinated scam where a group of individuals artificially inflates the price of a low-volume cryptocurrency by spreading hype or misinformation. This is the “pump” phase.
Once the price rises and retail investors start buying in, the original group sells off their holdings at a profit, causing the price to crash. This is the “dump.”
These schemes are illegal in traditional stock markets, but in crypto—especially among lesser-known altcoins and meme tokens—they’re still very common due to the lack of regulation.
Real-World Example
Imagine a new coin appears on a lesser-known exchange like TradeOgre or XT.com. A group starts promoting it heavily on Reddit, Twitter, Telegram, and Discord, claiming it’s “the next big thing.”
The price spikes 300 percent—or more—in just a few hours. New buyers rush in, driven by fear of missing out. But behind the scenes, the original promoters are quietly offloading their holdings. As the hype dies down, the price collapses. Those who bought late are left holding a coin that’s nearly worthless.
A perfect example of this occurred in mid-2024 with the Hawk Tuah Coin. Born out of a viral meme, it gained rapid popularity thanks to coordinated promotion on social media. Influencers hyped it as the next breakout meme coin, and its price surged within days. But just as quickly, major holders began selling off large amounts, triggering a steep crash in value. Many retail investors who bought in late were left with significant losses.
The Hawk Tuah Coin saga serves as a warning: even the most popular meme coins can turn into pump and dump schemes when there’s no real utility or long-term value behind the project.
Why Canadian Investors Should Be Extra Cautious
While crypto regulations in Canada are improving, enforcement is still limited—especially on unregulated platforms. Most Canadian investors don’t have the same legal protections they’d have in traditional markets.
Here’s what this means for you:
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Losses from scams like pump and dumps are usually irreversible.
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Exchanges based outside Canada may not comply with Canadian laws or offer support.
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Law enforcement has limited ability to pursue scammers based overseas.
If you’re using platforms not registered with Canadian regulators (like the Ontario Securities Commission), the risk increases significantly.
Common Signs of a Pump and Dump
| Red Flag | What It Might Indicate |
|---|---|
| Sudden, unexplained price surge | The coin may be targeted by a pump group |
| Low trading volume or market cap | Easier for bad actors to manipulate |
| Over-the-top promotion | Phrases like “next 100x” or “guaranteed gains” are common |
| Influencers or YouTubers pushing the coin | Many are paid to promote without disclosing it |
| Lack of whitepaper or technical development | No real project, just hype |
If it sounds too good to be true, it probably is.
How to Protect Yourself
1. Do Your Own Research (DYOR)
Before investing, learn about the project’s use case, the development team, community engagement, and whether the project has real utility.
2. Be Cautious with Social Media Hype
Avoid jumping into coins just because they’re trending. Many promotions are paid or manipulated.
3. Use Reputable Canadian Exchanges
Stick to registered platforms like Newton, Bitbuy, or Shakepay where there’s more regulatory oversight and better customer support.
4. Check Wallet Distribution
If a few wallets control most of the supply, the risk of a dump is much higher.
5. Avoid Low-Liquidity Coins
Low trading volume means large price swings—and it’s a red flag for manipulation.
Should You Ever Try to “Ride the Wave”?
Some traders attempt to profit from pump and dump cycles by getting in early and exiting before the dump. While this sounds appealing, it’s extremely risky. Most people are not early enough and end up losing money.
These schemes are zero-sum: for every winner, someone else loses.
Long-term, disciplined investing—or mining coins with real value—is a more sustainable and ethical strategy.
Final Thoughts
Pump and dumps are one of the most common traps in the crypto space. For Canadians looking to get into cryptocurrency, knowledge is your first line of defense.
At CanadianCryptoMining.com, we’re committed to helping you understand the crypto world and avoid costly mistakes—whether you’re investing, mining, or just getting started.
Got questions? Leave a comment or check out my Beginner’s Guide to Crypto to get started.
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