Pump-and-dump schemes have been around for years, with scammers making a fortune while victims are left with nothing. The cryptocurrency marketplace isn’t immune. A new analysis by the Wall Street Journal found trading groups manipulated the price of digital tokens to the tune of $825 million in trading activity over the course of the last six months, resulting in hundreds of millions of dollar in losses for those who fell for the scams.
Poring over the trading data and online communications between cryptocurrency traders from the start of 2018 through the end of June, the Journal found 175 pump-and-dump schemes covering 121 different digital tokens. In many of these cases, the price of these sometimes-obscure cryptos rose and fell within minutes. (See more: Cryptocurrency Trading Is The Second Most Common Investment Scam In Australia.)
Crypto Pump And Dump Schemes Harder To Stop
Pump-and-dump schemes are still alive and kicking in the equities market, with the Securities and Exchange Commission regularly going after the bad guys. The same can’t be said of cryptocurrency markets, since they are unregulated and anonymous.
This time around the traders are meeting in digital chat rooms on messaging services like The Telegram and Discord, often by invitation only. One of the largest identified by the Journal is called Big Pump Signal, with more than 74,000 followers. The group, according to the newspaper, has made $222 million in trades, pumping up a cryptocurrency only to sell minutes later.
Big Pump Signal will announce a date, time, exchange and the coin to artificially pump up and will then sit back and let the traders create a frenzy around buying the digital token. Once it moves closer to a higher target price the traders will turn around and sell. The scam happens in minutes. The Journal pointed to cloakcoin, a relatively unknown cryptocurrency that trades on the Binance exchange, as one example of a recent pump-and-dump. In July Big Pump Signal sent out a “signal” that the digital coin should be purchased at 3:00 p.m. The currency's price surged 50% while other cryptocurrencies on the exchange saw few price movements. After two minutes it declined by nearly $1.00. There were a total of 6,700 trades valued at $1.7 million. A mere hour earlier no trades were made. (See more: Cryptocurrency Has Set Us Back 300 Years: Krugman.)
Pump & Dump Groups Don’t Hide Their Intentions
While it's hard to pinpoint the exact number of these trading groups, the Wall Street Journal found 63 active groups. They aren’t secretive about their names either. Some go by titles such as Orion Pump, MEGA Pump, and A+ Signals. The moderators of these groups tend to remain anonymous, charging anywhere from $50 to $250 a month for access to the groups. The operators benefit the most because they select the coin to pump and dump. For the traders, it can be risky. Wait too long to cash out on the scam and they can see their ill-gotten gains evaporate. It “incentivizes the poor followers to keep buying until the [target] price is reached, which it often never does,” Taylor Caudle, who participated in a January operation at Big Pump told the Wall Street Journal. “I instantly lost $5,000 in about 30 seconds.”
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