Pump-and-dump schemes with cryptocurrencies: stories from the wild

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Psst. Wanna make some easy profits with little investment? Let’s do this: see us in this Telegram group, where we can coordinate a massive purchase for some unknown crypto-coins in that exchange. Then, we can spread the word in other groups and social media… we’ll invent something about the coin.

You know, something good. Like it has a new technical improvement, or it was listed by another exchange. It doesn’t matter if isn’t true, we just need one thing: that more people see the price rising and get in, buying more and increasing, even more, the price for our token.

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Then, at the best moment, ¡bam! We’ll coordinate again to sell together and take our profits. Maybe we can gain more than 50% this time! Because, y’know, we bought it when it was cheaper and made it pump!

It’ll be a price dump then for the token because there will be so many people selling, so, you must hurry up and take your part. Of course, only our group will know about this to make it work.

Other people can lose money because of it? Perhaps, who cares. They can also take advantage of it and they should DYOR, so, it’s not that bad. Yes, it’s legal! These aren’t stocks, ok? Cryptocurrencies are unregulated. Are you in?

Inside a pump-and-dump scheme

Are you? That was a made-up example of a popular scammy scheme dubbed “pump-and-dump (P&D)”. And, well, it works just like that: a large group of people coordinate themselves to buy some obscure altcoin or token, the price increases as a direct consequence of it, they spread fraudulent announces about the coin to attract more investors and increase even more the price, and then, they sell at the same time.

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Some people gonna win, some people gonna lose. Of course, the winners are mostly from the initial pump-and-dump group, and the losers use to be… everybody else. Is it legal? Technically, we can say isn’t yet illegal, but isn’t legit either.

In the traditional markets (as the stock exchanges), these schemes are officially illegal and punished by the authorities with heavy fines and even years in prison. In the cryptocurrency world, for its part, the regulations are in development. So… some people are taking advantage of the slow process to make a dubious profit.

In order to achieve this goal, they create groups on Telegram, WhatsApp, Facebook, Twitter, Slack, Discord, and some popular cryptocurrency forums, like Bitcointalk. Lately, the video platform TikTok has been another popular mean to do this, since it’s full of influencers with thousands and millions of subscribers.

However, for now, the most popular platform to spread the “signals” (P&D schemes alerts) seems to be Telegram, followed closely by Discord. Maybe because both of them are widely used for legit purposes inside the cryptocurrency world.

Groups in Telegram

According to a 2019 study by Jiahua Xu and Benjamin Livshits from Imperial College London and Brave Software, there were around 100 pump-and-dump Telegram groups then, organizing an average of two pumps every day, “which generates an aggregate artificial trading volume of 6 million USD a month”.

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And that was with not even half of the members of groups participating. They described in the document a specific pump designed since the beginning to make profits with the not-so-much-popular altcoin BVB, thematic of the German football club Borussia Dortmund (a.k.a. BVB).

The announcement pre-pump was done through four groups, from which “Official McAfee Pump Signals” was the bigger (+12.333 members). The pump was done when 322 buying transactions were made at the same time in the exchange Cryptopia: after merely 15 minutes, the price of the token tripled.

The total buy volume ended up in 1.06 BTC, while the total sell volume was only 0.58 BTC. And that’s no good news, as the research authors explain:

However, it’s worth to notice that only 322 members or less of the four groups with thousands of them agreed to participate. Then, the majority in those groups can be only observers.

As for us, we checked how’s the thing in Telegram this year. And yikes, we found a group with +173.500 members, preparing at least three pumps per day.

Meanwhile, on TikTok…

Everybody knows this isn’t a very serious platform, and that’s exactly why it’s been so eye-catching for young people. These young people might be interested in cryptocurrencies, and probably they find funny and attractive the idea of making easy money since a lot of these users have large fan bases to work together with.

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That’s probably what happened last July when a tiktoker with almost 9.000 followers started a viral challenge to buy Dogecoin, so they can “get rich” by pumping (and later dumping) this altcoin. The result was an 86% increase in the price after four days, almost totally lost by the end of the same month.

But that was just the beginning because, a couple of months later, the developers and admins of some obscure altcoins saw their chances and started to propose paid partnerships to TikTok influencers. That way, they would promote new pump-and-dump schemes to their audience with specific altcoins, to make profits from advertisement and for the scheme itself.

Traces on Twitter, Facebook, and Bitcointalk

They’re not so popular to do this, but that doesn’t mean they’re not used at all. Twitter, Facebook, and Bitcointalk have their own groups and post to promote these kinds of schemes, usually linking to Telegram or Discord.

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This a normal presentation for a post titled “Lists of Pump and Dump Discord Group 2018 with Over 100k Members” on Bitcointalk.

Some of the answers were very critical against these schemes, but others approved and celebrated the sharing. Twitter is more or less the same story, while on Facebook we just find likes and links. Do they know this might be illegal and now it’s actually unethical? It doesn’t seem like it. This is just another way of harmless trading for the majority.

Good or bad, profit or not profit?

This is a thing of predators and preys. Like it’s said in a Bitcointalk comment:

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Of course, no prey should be there, so this is considered in most cases another form of a cryptocurrency scam. Good or bad? Unethical. Profit or not? Profit, only for the privileged organizers (such as in pyramid schemes). A ton of losses for everybody else. And, probably, a bunch of harsh regulations in the next future.

Originally published at https://blog.alfa.cash on November 13, 2020.

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We are an eight-year-old and duly regulated cryptocurrency exchange. We offer crypto-fíat and non-custodial transactions, and valuable knowledge in our blog.

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