Pump and Dump Schemes Bring Millions of Dollars Monthly
Main page Analytics, Cryptocurrency
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Dec. 6, 2018

Researchers at Imperial College London have concluded that one of the most popular fraudulent schemes in the cryptocurrency market is still the so-called pump-and-dump.

Imperial College London conducted a study of 236 pump-and-dump episodes from July 21 to November 18. The scheme is that the organizer chooses a coin, artificially causes a stir on its purchase, thereby increasing the asset’s price many times, and then sells the coins, greatly increasing its funds. However, many other investors who bought the coin at an inflated price remain at a loss.

The scheme is widely used in the cryptocurrency market. The authors of the study note that at the moment, trading under pump-and-dump schemes takes up 0.049% of the daily trading volume.

In total, according to analysts, the schemes of this kind account for about $7 million in the volume of cryptocurrency trading every month. It can be concluded that their organizers still receive a good income, despite the general decline in the market. As a rule, fraudsters use Telegram channels in their schemes where they announce the start of pumping. For example, the Official McAfee Pump Signals scheme worked on this principle with 12,000 subscribers in Canada.

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At 19:30:04 GMT Official McAfee Pump Signals called the coin for pumping which became BVN. The token was created in 2016 by fans of the German football club Borussia Dortmund. The cryptocurrency remained in oblivion for more than a year and was trading at the level of 35 satoshi. After the announcement, the situation developed rapidly.

Researchers write that the first bid was placed and completed within one second after the original announcement. In just 18 seconds of manic buying, the price of the coin soared to its peak at around 115 satoshi. Then the participants of the pump began to actively make a profit and get rid of the asset. Three and a half minutes after the start, the price of the coin fell below the opening level along with the trading volumes.

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Analysts came to the conclusion that all those who joined the procurement later than 18 seconds after it began, could not count on a positive outcome. Secondly, participants in the scheme bought almost twice as many coins as they sold. From this we can conclude that they still have large amounts of unrealized cryptocurrency on their hands.

The researchers also analyzed 236 other cases of using this scheme, which occurred between July 21 and November 18, and stressed that most of them are preceded by atypically large purchases of cryptocurrency. The data showed that the organizers of pump-and-dump can easily use insider information to gain additional income by donating to other participants in the scheme, the researchers concluded.

They also proposed a way to limit the fraudulent method, but it is unlikely to be effective in the long term, because the organizers of such activities, as a rule, quickly adapt to changing conditions and find ways to trick the computer algorithm.

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