The Way to Defend Yourself Against Pump-and-Dump Crypto Scams
“Pump and dump” schemes have been in existence since long before cryptocurrency was devised. What is striking about the crypto markets is this kind of manipulation is done out in the open.
Like it or not, crypto is here to stay. As the marketplace evolves the scammers and fraudsters will probably be weeded out as law is enforced. Until then we could anticipate there’ll some tears on the way.
Move with additional caution about tokens issued from initial coin supplies (ICOs), as some have estimated that maybe one out of 10 ICOs has used this scheme at least one time.
Howmuch, though? 1 means is to promote whistleblowing.
For an illustration, here’s a screenshot of a P&D group in action, courtesy back of Business Insider. Be aware the breathless language that attempts to capitalize on FOMO (fear of falling): a coin cost is “flying”; it’s “so cheap today.”
Just look at the names of the best five P&D chat groups on Telegram, based on Business Insider:
What is more, “for cryptocurrencies that exchange on several markets, a trader could potentially move the market worldwide by shifting the cost on one exchange.”
The Commodity Futures Trading Commission (CFTC), the U.S. agency that governs derivatives, announced in February it might pay a bounty to those who come forward with information that results in an enforcement actions.
“It has a negative effect on the overall marketplace and readily creates anxiety, uncertainty and doubt (FUD) in the overall crypto community,” said Oleg Seydak, also the CEO of Blackmoon Financial Group, also a stage for market lending of cryptocurrency.
Another potential solution is a self-regulatory organization (SRO) like the one suggested by Gemini founders Cameron and Tyler Winklevoss. But it’s unclear whether an SRO would have any teeth.
But you have to give them credit for one thing: they don’t couch their actions with euphemisms.
Until authorities come up with rules to suppress P&D scams, and investors will need to be really cautious they don’t get taken for a ride.
Psychology is crucial behind these scams. Beware as fraudsters are generally masters of persuasion and will tailor their pitches to tap into their targets’ psychological profiles.
The leader in blockchain information, CoinDesk is a press outlet that strives for the highest journalistic standards and abides by a strict set of qualitative policies. CoinDesk has been an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups.
Keep your guard up
Though this twisted sort of transparency might be refreshing compared to the secretive manipulation of Libor by traders at big banks a decade past, the prevalence of these groups underscores the hazards confronting investors in cryptocurrency.
Cryptocurrencies generally are prone to manipulation because, such as penny stocks, they’re thinly traded compared to monetary assets.
Based on a January blog post by Sergey Khorolskiy, if some ICO teams recognize their job is close to collapse, they arrange a pump and dump. The plan is straightforward: Utilizing all types of social networking, they begin to “take” followers with good news.
On various social networking stations, for example Telegram, BitcoinTalk and Reddit, groups of individuals come together and agree to get altcoins at a specific cost and to market concurrently at a specific time once the price peaks. They often spread false or misleading information to persuade unsuspecting investors to purchase throughout the run-up.
Pumping a balloon picture via Shutterstock
“This kind of manipulation unfortunately affects a excellent bulk of fresh crypto investors and when we need the industry to flourish, we will need to work together to prevent and shut down these stations and groups,” he said.
- PumpKing Community (14,317 members)
- Crypto4Pumps (7,602 members)
- AltTheWay (5,582 members)
- Pump.im (148 members)
- OCPump (1,281 members)
“One investor could induce prices on one exchange by taking a large position one way or another, or by simply placing out a sizable bid or request that alone moves the market,” said Trace Schmeltz , a partner in the Chicago and Washington, D.C. offices of Barnes & Thornburg LLP.
For this reason, investors should be careful of subsequent pricing as represented on less well-established trades, Schmeltz additional.
Remember, if it seems too good to be true, it probably is.