Pump and Dump Cryptos: 175 Fraudulent Schemes on 121 Different Coins This Year

‘Pump groups’ fuel millions in trading activity, with price rises followed by quick falls.

If you are messing with cyptos in general, but especially the newer coin offerings, you are playing with coins rife with fraud.

The Wall Street Journal reports Traders Are Talking Up Cryptocurrencies, Then Dumping Them, Costing Other Millions.

Dozens of trading groups are manipulating the price of cryptocurrencies on some of the largest online exchanges, generating at least $825 million in trading activity over the past six months—and hundreds of millions in losses for those caught on the wrong side, according to a Wall Street Journal analysis.

In a review of trading data and online communications among traders between January and the end of July, the Journal identified 175 “pump and dump” schemes involving 121 different digital coins, which show a sudden rise in price and an equally sudden fall minutes later.

A pump-and-dump scheme is one of the oldest types of market fraud: Traders talk up the price of an asset before dumping it for a profit and leaving fooled investors with shrunken shares. The Securities and Exchange Commission regularly brings civil cases alleging pump and dumps using publicly traded stocks, but it has yet to bring a case in the more opaque market of digital currencies. The SEC declined to comment.

“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,” said Ben Yates, a cryptocurrency lawyer at London-based RPC.

The boiler rooms of yore have an online analog in the “pump group,” a chatroom where coin traders gather. The biggest of the dozens the Journal analyzed is Big Pump Signal, with more than 74,000 followers on the messaging app Telegram. It is also the most prolific: After launching its chatroom on Telegram in late December after reaching capacity on another messaging app, Discord, the group promoted 26 pump operations that saw $222 million in trades.

Big Pump Signal’s strategy is straightforward, like others pumping coins: announce a date, time and exchange for a pump; at the set time, announce, or “signal,” the coin being pumped, let the traders create a buying frenzy, and then quickly sell. It can all happen in minutes, and successful traders publicly gloat about their profits.

One day in early July, for instance, Big Pump Signal commanded its many followers to start buying an obscure coin created for untraceable transactions called cloakcoin—at exactly 3 p.m. EDT on a South Korea-based exchange called Binance. “@everyone be sure to ride the waves!” urged the anonymous moderator of the group’s Telegram channel.

Like the other active groups, the Big Pump Signal operation is a mystery: the moderator is anonymous; the ownership of an associated website is cloaked; and attempts at contacting the moderator were unsuccessful.

Binance, currently the largest online exchange by volume, according to research site CoinMarketCap.com, is frequently used for pumps. It has hundreds of coin listings, many small enough for a pump group to effectively buy and control.

Big Pump Signals

I suggest staying away from these scams.

If you want to trade cryptos, Bitcoin at least tends to have trends that last for hours or days, not minutes or seconds.

Mike "Mish" Shedlock

Comments (5)
No. 1-5
FelixMish
FelixMish

Is there any reason why someone might want to play both sides of a pump-and-dump? For instance, is there some reason why I might report to someone a transaction, but fail to report another transaction that effectively cancels the first transaction?

ReadyKilowatt
ReadyKilowatt

First thought "This is why we can't have nice things." Second thought: don't invest in crypto currency, just use it as a transaction medium. It is very easy to move money around with any of the cryptos, which might be one reason why it is subject to the big swings relative to hard currency.

everything1
everything1

A fast internet connection helps I'm sure .. allot. That, and big time programming skills. I played around with crypto during the main runup, then cashed it out and never looked back. I didn't like how the rules kept changing, and I especially didn't like how the exchanges would freeze up and not allow me to sell or trade when I wanted to. To my crypto is a good example of how cheap and easy money has become. Due to the fact that it operates on a 24/7 worldwide trading platform, it's a big draw. If any of these crypto companies would put something tangible behind their coins we might actually see something great happen, with corporations owned differently, operating differently, and maybe the people might have more of a voice. But .. greed and corruption creep in, and the followers of the pioneers don't play fair.

shamrock
shamrock

I don't see how, on aggregate, the group can make any money doing this. They would need rubes watching the exchange closely enough to notice a 50% increase in price in 30 seconds and then be stupid enough to buy it at the higher price. Really?

RonJ
RonJ

"“Cryptocurrency exchanges are unregulated markets..."

FASB was told to allow banks to lie about the value of their assets. The 2009 stock market rally began immediately after.