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Cryptocurrency “pump and dump” schemes reach $7 million monthly


“Pump and dump” schemes designed to make cash through value inflation are building up $7m per month in what is essentially “fake value”, a bold new report from a British university has concluded.“Pump and dump” schemes designed to make cash through value inflation are building up $7m per month in what is essentially “fake value”, a bold new report from a British university has concluded.

The report, from Imperial College in London, suggests that the schemes are in practice defrauding investors who aren’t aware of the true nature of the schemes – to the tune of several million dollars every few weeks.

A pump and dump scheme involves purchasing a number of assets and then artificially pushing up the price of them through the spread of largely hyped-up information.

Once this has been done, those behind the pump and dump scheme then sell the asset in question at the new-found high price.

The report chronicled a number of alleged crypto pump and dump events which had contributed to the conclusion that millions of dollars a month are lost in this way.

The work, which was carried out by researchers Benjamin Livshits and Jiahua Xu, focused on just over 230 alleged pump and dump schemes which took place between 21 July and 18 November.

By looking at these 236 schemes, the researchers were able to conclude that even those who were already aware of the practice of “pumping” may fall victim to the schemes.

“The study reveals that pump-and-dump organizers can easily use their insider information to take extra gain at the sacrifice of fellow pumpers”, the report said.

In one example, posters in a group calling itself “Official McAfee Pump Signals” on the messaging service Telegram were seen to encourage others to buy a particular token.

However, according to the report and the press coverage around it, what most likely happened in practice is that those allegedly behind the pump and dump scheme instead bought up the token in question and then sold it on.

In this particular case, the value of the token in question rose to 115 “sats” – or satoshis, a term given to a particular multiple of bitcoins – within 18 seconds.

Ultimately, however, the token would end up declining in value back to a point that was lower than what many original investors had paid.

The researchers described the purchase process in this example as “manic”.

“We notice that the first buy order was placed and completed within 1 second after the first coin announcement….After a mere 18 seconds of a manic buying wave, the coin price already skyrocketed to its peak (of 115 sats)”, they said.

Overall, the researchers believe that there may be two pump and dump schemes happening every single day, with an overall trading volume of $7m every single month.

They were even able to use their insights to forecast pump and dump schemes before they happened, and their forecasts were proven right five times within one single week.

However, pump and dump schemes are nothing new in the world of cryptocurrency.

Earlier this year, the US Securities and Exchange Commission had to point out that it did not regulate “pump” promotions.

“Although some of these platforms claim to use strict standards to pick only high-quality digital assets to trade, the SEC does not review these standards or the digital assets that the platforms select, and the so-called standards should not be equated to the listing standards of national securities exchanges”, it said.