The crypto pump and dump scandal

Researchers Jiahua Xu and Benjamin Livshits at Imperial College London have studied the crypto market and established that pump and dump schemes account for about $7 million worth of trading volume per month.

The study was published in the MIT Technology Review and revealed that there are ways to spot a pump and dump scheme before it happens. A pump and dump scheme is basically a form of securities fraud. It operation is simple: the scheme organisers “choose a coin, boost its price and then “dump” sell their overvalued currency, which further leads to the price falls and losses among the investors.” This behaviour has unfortunately become well known in the crypto space.

The university researchers focused on a pump and dump scam involving the BVB coin. According to the report, they collected details by following announcements on several Telegram channels, including Official McAfee Pump Signals, and recorded the price changes and trading volumes of the selected coin around 14th November 2014, which is when the actual pump and dump is thought to have happened.

At this time, the McAfee Pump Signals indicated BVB had been dormant for more than a year, had little trading activity and a value of only $0.00132. On 14th November there was a sudden buy order placed and completed, and the coin’s price surged within 18 seconds to $0.00434. The researchers said it then took the participants “three and half minutes after the start of the pump and dump” to take their profits, after which “the coin price had dropped below its open price.”

Xu and Livshits investigated 236 other pump and dump scams that were performed between July 21 and Nov. 18, concluding that “many of them were preceded by unusual buying activity in the target currency,” and added, “The study reveals that pump and dump organisers can easily use their insider information to take extra gain at the sacrifice of fellow pumpers.”

And how do you spot a potential pump and dump? Xu and Livshits say you just have to watch out for “unexpected trades in shadowy coins.”