Pump-And-Dump Schemes Are Manipulating Investors

By Swati Kishore

As per a new academic paper, which analyzed the abuse inherent in the crypto markets, it has been revealed that tricksters are manipulating the prices of digital currencies, including Bitcoin, to successfully dump their assets on gullible crypto traders at higher prices.

The academic paper has analyzed data from the cloud-based instant messaging platform, Telegram, and the famous digital distribution platform, Discord, to successfully identify as much as 4,818 pump-and-dump schemes in the crypto markets during the time period of January 2018 to July 2018. Notably, Telegram and Discord apps are popular amongst the crypto community.

The draft of the academic study, which is published in the Social Science Research Network, states that such pump-and-dump schemes are widely carried out by scammers to make profits. According to the report, regulators should be cognizant of the numbers and take appropriate steps to scale back on such scams.

Academics from the Universities of New Mexico, Tusla and Tel Aviv, elaborated,

“The proliferation of cryptocurrencies and changes in technology have made it easier to conduct pump and dump schemes. While the fundamentals of the ruse have not changed in the last century, the recent explosion of nearly 2,000 cryptocurrencies in a largely unregulated environment has greatly expanded the scope for abuse.”

The paper subsequently highlighted that the absence of regulations in the space entails that groups aiming to run such schemes do not even make an attempt to conceal their schemes. Interestingly, the US Securities and Exchange Commission had recently raised concerns over market manipulation. The SEC has stated that such pump-and-dump schemes should be addressed before the Commission is to approve a Bitcoin ETF. A Bitcoin exchange-traded fund is proposed to increase the mass adoption of digital assets.

The US Justice Department had, in May 2018, opened a probe into traders’ manipulation of the prices of cryptocurrencies such as Bitcoin. The criminal investigation has increased the scrutiny of the crypto markets.