Pump and dump schemes have been around for as long as the stock market. Groups of shady investors in 1929 coordinated share purchases in order to drive the prices up before selling them to the unsuspecting masses who were enticed by the soaring value of these stocks. This type of market manipulation was common back in the days and now, mixing social media and unregulated cryptocurrency exchanges ,we obtain, pump and dump 2.0. It’s faster, safer and even more profitable.
I have distinguished three different types of P&D :
High frequency bots
Firstly, we have bots programmed to buy and sell when price hits a certain determined value. This enables whoever is operating the bot to day trade very efficiently, catching high and buying dips, and even manipulate a currency by buying simultaneously a coin with different bots. This will result in huge price spikes that will crash instantly after the bot liquidates his position, merely seconds after pumping the price.
- Telegram / Whatsapp secret pump and dump groups
The second type of pumps are those that are born in secret telegram groups (not CIA level secret, you can find them on google pretty easily) and in which the schemer uses the audience of the group to pump a coin for a short period of time.
Telegram pump and dump groups are using small exchanges such as YoBit to run their scam. No one is able to express himself in the group except for whoever is behind it. They give the signal, and thousands of crypto-thirsty retail traders jump into a trade that they, in most cases, haven’t even heard about. Prices climbs for a few minutes while everyone is pumping, meanwhile the scammer is enjoying the liquidity he created for himself, and dumping his shares, bought in advance at a low, for ridiculously overvalued prices.
As you can imagine, these scams are profitable for those who initiate them, but devastating for the uninformed who just took a position on a trade that will likely, NEVER go up again. Tough luck, try again next time, newbie.
- Influencer pumps
Last but not least, influencer pumps. We’ve heard about this throughout the years, influencers can manipulate their fanbase and get them to buy a stock and now, a crypto. As you have guessed by now, prices go up, the influencer then dumps a whole load of shares at a premium price, collecting all his followers hard-earned dollars.
50 cents was linked to a penny stock pump scam in 2011. At that time, he took to twitter and described in a series of tweets how great was HNHI and that everyone should jump in. Which they did.
I suspect the same thing is happening in the cryptoworld.
Is cybersecurity mogul John McAfee leveraging his traditional and social media attention to artificially pump emerging cryptocurrencies such as Verge or SafeX ?
After tweeting about how important he believed these coins to be in the future, prices rose (100% in the case of XVG) and broke all time highs.
After all, there is no questioning that the same thing happened when MGT capitals announced his appointment as CEO, the stocks went through the roof, straight into the stratosphere, with an increase of 1000% !!
Throughout the years, John has proven to be quite an expert at capturing peoples attention, sometimes in questionnable (some may say unethical) practices, but nevertheless, he always seemed to be able to turn this to his advantage.
My question is, does he hold an unfair chunk of these coins, giving signals to his growing following just to finally dump them at their high ?
To conclude this post, I’d like to thank everyone for reading and for being part of the financial revolution that our society is experiencing. Cryptocurrencies are the future, whether you like it or not. Big returns can be expected in this market and a lot of people are going to make a ton a money, therefore I advise you to do your research and invest in what you understand to prevent them to make it on your back.