Cryptocurrency markets may have seen an extraordinary crash in 2018, but that hasn’t stopped pump and dump groups from continuing to cash in hundreds of thousands of dollars. Research from Social Science Research Network (SSRN) published Wednesday found thousands of pump and dump signals across popular messaging platforms, such as Telegram and Discord, during a six-month period this year involving more than 300 cryptocurrencies.
Pump and Dumps Explained
Pump and dumps are where a signal is given to buy up a large amount of one particular coin, which then artificially raises the price, causing oblivious investors to buy in, at which point the group sells their tokens for a healthy profit, leaving the later buyers holding the coins. The coin price then usually quickly reverts back to its original price, or lower. eosBlack was a victim of a pump and dump last month, an episode that saw the price briefly rocket then plunge back down again in a matter of hours. It later emerged that a pump call had been placed in the Telegram group, which explained the strange price action.
SSRN found that there were 4,818 such pump and dump attempts during their six-month tracking period, equating to approximately 200 a week, with smaller coins with low volume resulting in a much bigger success rate than larger coins. This may explain why the process has continued throughout the bear market.
Can Regulations Stop Pump and Dumps?
SSRN point out that their data will likely be of concern to regulators who have previously cited market manipulation as one of the key reasons not to grant a Bitcoin ETF. Reports such as these won’t do much to help Bitcoin’s case, although it must be noted that the exchanges linked to ETF applications, such as Gemini, have employed monitoring software to eliminate pump and dumps. Incoming regulations may go some way to assist in this endeavor, but it is inevitable that the practice will continue somewhere, probably on smaller exchanges.
As tempting as it can be to earn a quick buck by being part of a pump and dump group, especially in a slow market, not only is it morally wrong it will probably end up leaving you out of pocket. Such groups often consist of an inner band who buy the tokens cheap, get the group to pump the price and then sell at a price slightly under that of what the advertised sell price, meaning that anyone not on the inside loses out. Just remember, if it’s too good to be true, it probably is.