Why you shouldn't invest based on hype: Gambling on shitcoins that turn out to be pump and dumps.

Disclaimer: Due to the cynical nature of this sub, I find it imperative that I put a disclaimer at the very beginning of the post that I unequivocally DO NOT CONDONE gambling on shitcoins.

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So by now, it should be very clear to all of us to stay away from pump and dump projects. If you are new and unfamiliar with pump and dump projects, it basically works like: A pump and dump group would launch a token and use social media platforms to spread rumors, misinformation or hype to draw in buying interest. Once the buying interest begins, there will be an instant spike in price. Other investors who start noticing this sudden uptick in price would start piling in to drive the price even further up (the pump phase). During all this frenzy and fervor, the group behind these projects would start selling and effectively cash in on their scheme (the dump phase). At the end of it all, investors will be left with worthless tokens, while the group would make off with thousands if not millions of dollars.

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Stats from this study from 2021. Pump and dump schemes are quite lucrative.

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In this study from 2021, the researchers sampled 1,307 different cryptos being launched over a time frame of 7 months (granted this was during the bull market) and found that 197 (15%) of those are pump and dump schemes. They found that these pump and dump schemes often experience 65% increase in price during the initial stages. The authors remarked:

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“There is at least one pump on 133 days out of the 175 days in our sample, indicating that there is almost one pump per day on average. Such a high rate of manipulation is unprecedented in financial markets.”

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I have a few buddies who liked to sort of gamble on these shitcoins. They would say something like "Oh, it's just $50 or $100. It's just like buying the lottery but with better odds." I get the allure of buying shitcoins to potentially make it big, but I have to disagree. It's kinda like buying the lottery, except in this scenario, you are unknowingly supporting unregulated gambling and allow these pump and dump groups to continue their operations. $50 or $100 may not be significant for you individually, but if more and more people become victims, that number could easily grow into hundreds of thousands or even millions.

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So, have you ever gambled with shitcoins and how was your experience with it? I would expect most of these gambles to end with more losses than profits (unless you are an insider).

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TLDR; Don't invest based on hype. Putting money into pump and dump projects and hoping to make some quick profits is not a good idea and only perpetuates the operations of these groups.

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