Pump And Dump Groups; Navigating The Crypto Waters

Pump and dump groups are a growing problem in the blockchain arena. A recent study conducted by researchers at The Social Science Research Network (SSRN) identified around 4,818 crypto pump and dump schemes during the six month period between mid-January and early July of 2018. The collaboration included research from universities in the US, Mexico and as far afield as Israel.

The researchers used a comprehensive data collection process, which focused purely on Telegram and Discord. Scammers use these two popular social messaging applications to regularly attract thousands of unsuspecting investors. The paper went on to show that obscure and low cap coins went on to gain an average profit of 23 percent via Discord. Compare this to a measly 3.5 percent when using one of the top 75 coins.

What are Pump and Dumps and How Do They Work?

Pump and dumps are not endemic to crypto. They typically appear in any market that starts attracting large amounts of capital. They gained traction in the first share markets of the early 1600s and can even be found in the penny stocks of current major stock markets.

Pump and dumps are initiated by strong marketers who promote or pump specific coins/shares/assets in the hope of generating hype and temporarily driving up the price. Hype is a key ingredient in getting buyers to jump on board or risk the #FOMO. This is a lot easier to do today with the rise of social media platforms and the relative anonymity that they bring.

In most cases, these marketers buy the coin before promoting it to ensure they get in at a good price. Pump and dumps work particularly well with low capitalized coins because it’s a lot easier to push the price around. The payoffs are also clearly better. Once they’ve attracted enough investors (suckers) into the group, it’s time to initiate operation “let’s move the price!”

The “Night Singer of Shares” selling stock on the streets during the South Sea Bubble. Amsterdam 1720.

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