Today we conduct an investigation into Pump and Dump Groups.
Pump and dump groups, although their prime seems past us, are still a pretty common sight in the crypto space. It’s basically a case of an old brew in a new bottle, as the scheme originated from securities fraud on traditional stock exchanges.
The scheme is based around a group of people (called the organizers or insiders, who have previously bought an asset that is easily manipulated i.e. with low traded volumes) spreading around false and misleading information, that lead to people buying a certain asset, drastically inflating its price.
As people catch up to the hype and start buying in, the scammers usually have already sold their positions leaving the general public with an overpriced asset that – in a matter of minutes – starts dropping back to its starting price, or even below it. Below you have a promotional post by “PUMP OFFICIAL CRYPTO” telling its followers to pump the ALIS coin with a graph below showing the subsequent effects, flaring the market price up allowing particular holders to profit before crashing it down. Pump and dump schemes are a blight on the financial and crypto sectors as they erode the integrity of markets.
In case you don’t see the image below click here.
Such crypto pump and dump groups tend to use chat programs like Telegram, Discord or even Slack, cross-promoting among others in order to gain a sufficient following.
Additional sources of income are also referral links and paid access to so-called “VIP groups”. For a hefty fee, an interested party gets invited to the “inner circle” (which may, and usually is manufactured and consists only of outsiders) in order to receive such signals ahead of the public.
The victims of these scams (aside from the innocent bystanders and general public that jumped on the hype) are usually small, low market cap cryptocurrencies on unregulated exchanges. In the traditional market, this kind of manipulation is illegal, but since the cryptocurrency space is still very much unregulated, the perspective of profits in the range of 50-200% in a span of 10 minutes seems really appealing to a lot of people.
There’s no doubt, that proper KYC/AML industry standards could put a stop to many cases of such pump and dump market manipulation, but the crypto ecosystem itself needs to be involved.
Check out what we did with a pump and dump group below.
In case you don’t see the AML risk report below click here.
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