A pump-and-dump scheme attempts to boost the price of an asset through fake recommendations based on false or misleading statements. The perpetrators already hold the asset and sell once the hype has driven the price higher. This practice is illegal under securities law.
The proliferation of cryptocurrencies has led to a proliferation of pump-and-dump schemes. It is relatively easy for a player with a decent-sized balance sheet to cause a short squeeze higher in an asset with very low liquidity.
However, pump-and-dump schemes also require coordination between unconnected, selfish individuals — which game theory tells us is an unstable equilibrium. Be sceptical of any coordinated "tips" about obscure tokens in social media groups or messaging apps.
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