At the best of times, the world of cryptocurrency can be perplexing and difficult to navigate. And, unfortunately, there are a number of individuals out there attempting to profit from the misunderstanding through 'pump and dump' schemes.

I'm going to explain all you need to know about these scams, including how to avoid them and why high-profile celebrities like Kim Kardashian and Floyd Mayweather Jr. fell for them.

What is a crypto pump and dump scheme?

A pump and dump scheme involves intensively marketing an asset (sometimes with bogus benefits) in order to artificially inflate its price. Individuals are urged to invest their money and acquire the asset. Then, as the value increases dramatically, those promoting or possessing a significant position sell their interests, precipitating a price crash.

'Pump and dump' is one of the most vulgar-sounding words in finance, and it is not limited to cryptocurrency scams. There have been numerous instances of this occurring with common stocks. That said, it is significantly less prevalent and is most frequently seen in penny stocks.

Another common cryptocurrency fraud is the 'rug pull,' which operates in a slightly different manner. While a pump and dump operation results in some liquidity after fraudulently inflating an asset, a rug pull operation results in the entire disappearance of a project. And the project's creators keep everything!

How can you avoid financial loss in a pump and dump situation?

Co-founder of Crypto Head, Adam Morris, provides his top five advice for avoiding pump and dump schemes:

1. Be suspicious of large returns

If something appears to be too good to be true, it most likely is. As a result, always conduct additional research into any platforms or initiatives offering absurd returns. The same is true for people who promote a scheme as a surefire method of earning money.

2. Avoid celebrity counsel

Celebrities frequently possess highly specialised talents or abilities. However, it is uncommon for a celebrity or influencer to be an expert in personal finance or investing.

If you're seeking for reliable financial advice, it's best to stay away from boxers and reality television personalities. Rather than that, consult a financial consultant or conduct research at a reputable source – such as The Motley Fool!

3. Make use of a reputable exchange

If you invest in digital assets, always choose a reputable exchange. If you want to keep your cash safe and secure, avoid sending money or bitcoin to unknown platforms.

4. Take into account an offline wallet

Using an offline Bitcoin wallet, for example, can help keep your coins secure. Along with making it more difficult for hackers, the increased protection may help lessen the likelihood of being duped into an enticing scheme.

5. Comprehend cryptocurrency investment

If you are unable to explain the operation of an investment in a few phrases, consider an alternative. The lack of awareness surrounding even some of the most well-known cryptocurrency ventures renders individuals susceptible to scams.

This is also true when purchasing stocks or any other type of investment. You should always be completely aware of what you're investing your money in.

Why are celebrities endorsing cryptocurrency frauds?

Certain celebrities will go to any length for a little money. Others will advertise things without understanding how they work. This has a perilous consequence when considering the influence celebrities wield when advertising directly through social media. Adam Morris discusses a recent instance of a crypto pump and dump.

"In this scenario, you have celebrities such as Kim Kardashian, boxing star Floyd Mayweather Jr., and basketball legend Paul Pierce making incorrect or deceptive remarks about EthereumMax. These three celebrities collectively have tens of millions of followers on their various social media platforms.

"If employed by celebrities and famous persons, this might result in millions of dollars in profit for them while resulting in massive losses for everyone who invested."

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