Study detects 175 ‘pump and dump’ schemes worth more than $825m

In-depth study identifies fraudulent manipulation of cryptocurrency prices that has caused unsuspecting trading investors to lose hundreds of millions

A Wall Street Journal review of data and online communications among traders between January and July of this year shows specific groups manipulated the price of cryptocurrencies through pump and dump schemes causing unsuspecting investors to lose hundreds of millions of dollars.

“Dozens of trading groups are manipulating the price of cryptocurrencies on some of the largest online exchanges, generating at least $825 million (£636.5 million) in trading activity over the past six months,” the WSJ says.

“Those caught on the wrong side lost fortunes.”

The WSJ study identified 175 ‘pump and dump’ schemes involving 121 different cryptocurrencies “which show a sudden rise in price and equally sudden fall minutes later”.

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“Cryptocurrency exchanges are unregulated markets, so the kind of market manipulation banned on, say, the New York Stock Exchange, can essentially be carried out with impunity,” says London-based RPC cryptocurrency lawyer Ben Yates in the article.

The financial news outlet identified dozens of online chatrooms where coin traders promote the pump and dump schemes.

26 pumps worth $222 million

Two of the biggest are Big Pump Signal and Discord. Through the latter, the group promoted 26 pump operations totalling $222 million (£171 million) in trades.

The schemes are the oldest types of market fraud, involving traders talking up the price of a stock before dumping it for a profit and leaving the conned investor with overvalued shares.

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“Many more such groups exist, potentially adding millions or tens of millions more in activity, but operate in private chat rooms, accessible only by invitation, generally overseen by an anonymous moderator,” the news outlet says.

The schemes became more widespread after the explosion in initial coin offerings (ICOs), which raised about $20 billion (£15.5 billion) over the past 18 months, compared to the $300 million (£231.5 million) they raised between 2014 and 2016.

The Wall Street Journal offers one example in July when the chatroom Big Pump Signal commanded its tens of thousands of followers to buy a new, unknown token called the Cloakcoin.

“@Everyone be sure to ride the waves,” was the call from the anonymous moderator of the group’s Telegram channel. Immediately after, the Cloakcoin price increased exponentially on the Binance crypto exchange.

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The price of the token increased by nearly 50% within minutes of the 1st July message on Big Pump Signal, after which more than 6,700 trades worth $1.7 million (£1.3 million) were reported, “compared with virtually no trading the hour before.”

Then the dumping began, and in just two minutes the price plummeted almost a dollar. During the same period, Binance’s 10 most traded Bitcoin (BTC) pairs barely moved.

“Obviously, we were surprised. We cannot say why it happened, but it’s definitely not from our side,” said Harry Sidiropoulos, Cloakcoin’s marketing manager.

Conclusions

“The exact number of pump groups involved in crypto price manipulation couldn’t be determined, but the Journal found 63 actively pushing different pump schemes. The groups have names that don’t hide their purpose, such as Orion Pump, MEGA Pump and A+ Signals. Most operate on Telegram and Discord, where collectively they had 236,000 followers at the end of June,” explained the WSJ.

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Based on the study, crypto investors have to be especially cautious when trading with the lesser known of the 1,600 or so cryptocurrencies out there, as they are the ones that are usually targeted by the pump and dump con artists.

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