Pump and dump scheme:

Pump and dump is basically a manipulation scheme that individuals or an entity will accumulate the buying of a vehicle (stocks, crypto, commodities and etc) and artificially inflate the price through means of spreading misinformation and once the price is increased (pumping) they will start selling it off (dumping). Since the price in most case of intended Pump and dump drops, it leaves buyers who bought on the peak of the price, lose in the value of their assets. 

The most common way to do this in crypto work is through the provision of misinformation through digital channels, such as Twitter, Telegram or community-based websites. 

Courtesy of the image (link)

The figure above is an example representation of a Pump and Dump of an instrument that experienced the increase and decrease of its value. The figure clearly shows continuous inflation in the price of this asset (information spread from outside sources) and the deflation within a short span of time.

In this post, we focus on Pump and Dump within Cryptocurrency and the ways it’s implemented and not the means of it within the traditional market. We do this since Pump and Dump have become a very popular fraudulent activity amongst some opportunist Cyprocurrency traders. There are reportedly some Pump and Dump groups that are created for the only purpose of pumping an asset and them dumping them while taking advantage of the price difference.

These groups are rather in forms of online chat rooms like most popular ones are in Telegram with the main focus and purpose on organizing Pump and Dump scheme. There are reports that the price of a coin has increased by 950%. The number indicates the capability of such groups with pumping the price of and a token and perhaps how much the Cryptocurrency market is community-based.

Pump and Dump actors usually target low cap tokens with low trading volumes, these tokens are usually less popular and well-known. Such tokens are easier to manipulate since they have less circulation and organic trades performed on them within the market.

According to a report from the Wall Street Journal, Pump and Dump groups within a period of 6 months of trading activity. The report showed that within that trading timeframe $825 million linked to Pump and Dump activities. The report also revealed that one group itself contributed $222 million of this whole figure. On another report from Imperial College of London, on average, at least two Pump and Dump occurs on a daily basis which could round up to $7 million in daily trading volume.


Signs of Pump and Dump:


Sequentially speaking, most of these Pump and Dumps starts with a team declaring which token they are going to aim for. Typically at this stage, the members of the group start buying that token amongst themselves and load their wallets. Next stage is where they will create a buzz and misinformation on how great the token is on that point the token also has seen some volumes with the group purchasing some, hence the price increases automatically. The type of misinformation they provide also varies, according to some reports they create some social media accounts of well-known and reputable figures and create fake announcements on that particular coin they are pumping. The price pumps and more investors invest their assets into the token. Once the group decides, they sell out their accumulated shares and the reality hits and prices deflate.

There few ways to find out if a group or an individual is aiming to perform Pump and Dump on a token, we have gathered the most common signs of it.

The simultaneous spread of news and publications on a particular token in a very short time span. Some of these sources of publications could seem very legitimate at the first look, so definitely a second look is called for if an investor decides to trade based on the news. As previously mentioned in the article, one very common channel for spreading false information about a token is through social media or instant messengers most notable one in the Cryptocurrency market, Telegram. The idea behind this in most case is to make the FOMO vibe around investors.

The BIG buy. Usually, before this spread of news and publication with an intention of Pump and Dump, there is always a big buy prior to the news. An artificial increase in buying amount and the rush of the traders making buy trades on a buzzed around a token. This is usually an obvious signal to some more sophisticated traders. The U.S. Securities and Exchange Commissioner (SEC) has suspended a list of promoters and companies which could be a good initial check on the source of Pump and Dump