April 19, 2023
9 min read
Some traders are using a cryptocurrency quotation manipulation scheme known as “Pump and Dump”. On traditional exchanges, this practice is illegal and is strictly governed. However, due to the lack of cryptocurrency trading regulations in many countries, cryptomarket players are forced to develop countermeasures on their own.
Pump is the market situation that leads to very fast and fundamentally unreasonable growth of a cryptocurrency rate. This usually arises from the deliberate actions of experienced traders. Most often, a successful pump is followed by a price rollback or a so-called dump.
Dump (from English to dump or to drop) is the market situation completely opposite to the pump. A dump is an intentional disposition of assets in huge quantities, aimed at artificial rate lowering in the short term. The dump which is next to the pump allows manipulators to earn money from gullible traders who bought coins at an artificially high cost.
A pump-and-dump scheme has been around for a long time. If you have watched “Boiler Room” or heard about Jordan Belfort, who became the prototype of the main character in “The Wolf of Wall Street” movie, then, most likely, you have an idea of how it works. If not, then, first of all, you should know about the main players participating in this con: traders-promoters and traders-investors. The first ones are well aware of the upcoming manipulation scheme, and their main goal is to attract the second ones to the game. Promoters are primarily interested in investors who don’t have much experience in trading and are more inclined to believe their “expert” opinion.
Mostly, a pumper is not a one person but a whole company of “well-wishers” who can start buying one or another cryptocurrency.
And, by the way, if in poker those who can easily bring you a profit are called fish (compared to fish caught on a hook), then, in the world of digital money, flunky traders are called hamsters which are not the smartest animals, you must agree. These are usually just easy/quick money seekers without any skills and knowledge.
To figure it out when a certain cryptocurrency pumping begins isn’t only a way to protect yourself from unnecessary costs, but also to make some money. Large-scale pumps cannot start just like that because almost always these are well-thought-out and coordinated actions of several (tens, hundreds) people. They need a lot of money for big pumps, especially if they are going to raise any more or less well-known currency.
So, what users should pay attention to in order to detect similar processes in the market?
Here are some signs of a pumped currency that will allow you not to be trapped with your investments:
Large-scale pumping never starts just for no reason. It’s preceded by specific signals:
Having traced these signals, an experienced trader can predict a pumping and have time to enter it with the start of the first wave (when pumpers or pumping groups begin to buy up cryptocurrency en masse).
However, it’s quite difficult to notice and react to these signals in time. For this, we would have to constantly monitor market schedules of many cryptocurrencies. But there are alternatives:
Short-term – the value of a currency is raised to unprecedented heights in a matter of seconds. This type of pumping requires a large number of traders. Usually, a timer is set for a time when the trading pair will be announced on which cryptocurrency will be bought. Further, all pump participants are informed of the planned % growth. As soon as the time comes to an end, the name of the currency you want to buy is laid out on a public channel. Unfair communities buy this currency beforehand and place sale orders in advance for 50% of the planned growth percentage.Example of a pumping timer
Long-term is a pump that lasts from several minutes to several days. Currencies and terms are announced in advance. As a rule, there are chosen really promising coins. All participants also get various news on the selected currency, which they publish on social networks, chats, exchanges, and other places where people are interested in it. At the same time, there is a gradual process of purchasing the declared currency.
Firstly, at the appointed time, it’s is announced the upcoming pump, the name of the cryptocurrency and the crypto exchange address of its purchase. All pump participants – promoters – have to start buying the agreed cryptocurrency at the appointed time, thereby raising its quotes. This is the first wave of the pump.
Most often, such a pump doesn’t occur without a newsbreak. Promoters can use reliable information to argue a reason for the growth of the cryptocurrency rate. For example, you may receive information that the developers have updated the site. However, it can be completely fabricated.Pre-pump chart
Secondly, the participants of the first wave spread information about a “promising” cryptocurrency on the forums, in social networks and on Telegram channels. Their goal is to attract and convince third-party investors to buy a cryptocurrency they need. If the advertising campaign is successful, then they manage to attract third-party investors who already independently influence the growth of a cryptocurrency rate. This is the second wave of a pump, after which is a dump.Dump Chart
As soon as third-party investors begin to invest, promoters launch a signal through their own channels that it’s time to sell cryptocurrency at a better price. This leads to a rapid decline in the rate. Who doesn’t have time to react in time – loses money.
This is how it looks in practice:
One of the largest (and most profitable) communities is the Big Pump Signal group, which has more than 73,000 members in Telegram. After launching its channel in the messenger at the end of December, as well as the chat in Discord, the group conducted 26 pump-and-dump schemes with a total trading volume of $ 222 million. There are also many other similar groups with millions of turnovers, but they work in private chats with limited access which is available by invitation only.
In early July, the moderator of the BigPump Signal posted a message about pumping of a little-known coin Сloakcoin on the Binance exchange. The reaction was instantaneous: the price of Cloakcoin increased by 50% (to $ 5.77) on the exchange and in two minutes dropped to almost a dollar. A total of 6,700 transactions were executed for $ 1.7 million.
It’s impossible to define the exact number of such groups, but researchers have found at least 63 active communities that don’t hide their goals. These are Orion Pump, MEGA Pump, A + Signals and others. Most of them coordinate all activities in Telegram and Discord, where the total number of participants at the end of July has reached 236,000 people. The creators of Big Pump Signal, as well as other active groups, retain complete anonymity. Many of them charge a monthly fee for participating in a group – from $ 50 to $ 250. It isn’t known what amounts a regular participant earns in such communities, but administrators definitely have an advantage: they choose a coin, buy it at the lowest price and sell it at the peak they set.
As you may know from the previous paragraph, the Internet community is full of chats and groups urging to unite in order to create a pump and earn. You understand that organizers of such channels use the power of tens of thousands of participants and often earn not only on the strategy of Pump & Dump but also on paid access to their private exclusive chat rooms. Such actions in the stock market (from there this strategy has appeared) are equated to fraudulent ones, but one can argue with that. Each broker warns the trader about the potential risks of losing a deposit. And every trader agrees. A person is driven by the desire for easy money, and if he loses money without a detailed analysis of the market and knowledge solely because of greed, then who is to blame? In addition, most of the pump participants know about what they are getting involved in.
In the world of traditional investments, pump-and-dump schemes are illegal. However, due to the lack of regulation in the field of cryptocurrency, they are very attractive in terms of quick and easy earnings. Opinions are divided into such groups: those who have lost money are stigmatized, calling this scheme immoral and criminal, those who are closer to the core, usually claim that this is a good way to clear the market of “stupid money” and increase investor awareness of crypto-bubbles.
In principle, such schemes are no more immoral than advertising gambling or lotteries on TV – where there is money, there is always a risk, and without careful analysis, patience or at least good connections (as in the case of P & D) there will be no profit.
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