Puffing is a manipulative scheme used in cryptocurrency to artificially inflate a specific asset's price or trading volume.

How puffing works

First, scammers create many fake orders to buy cryptocurrency to generate the impression of high activity and liquidity. The artificially inflated demand attracts the attention of other investors who buy the cryptocurrency, thinking it is undervalued. Ultimately, when the price reaches the desired level, the scammers sell their cryptocurrencies at an inflated price, leaving other investors with depreciated assets.

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What are the signs of puffing

1. A sudden increase in trading volume: An unusual spike in activity for no apparent reason can indicate puffing.

2. Low liquidity: Despite high trading volume, buy and sell orders may be concentrated in a narrow price range, indicating artificial demand.

3. Lack of real users: Analyzing activity on social media and communities related to cryptocurrency can help identify the lack of real users interested in the asset.

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Consequences of puffing

Of course, when puffing, you can't get past the implications. What can they be?

Investors who buy cryptocurrency at an inflated price risk losing money when the price drops to natural levels. Puffing undermines confidence in the cryptocurrency market, making it less attractive to new investors. Also, price manipulation can lead to volatility and unpredictable price movements.

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A simple example of puffing

Pump and dump are the most common puffery schemes. In this scheme, fraudsters coordinate to artificially inflate the price of a cryptocurrency and then quickly sell their assets, leaving other investors with devalued assets.

In 2017, a group of scammers coordinated on social media to artificially inflate the price of a cryptocurrency called "Dogecoin." The cost of Dogecoin rose more than 300% in 24 hours before plummeting dramatically, leaving many investors with losses.