Pump-and-dump operations have been around for a long time, with fraudsters earning a fortune while victims get nothing. The bitcoin market is no exception. A recent Wall Street Journal investigation discovered that trading organizations manipulated the price of digital tokens to the tune of $825 million in trading activity over the previous six months, resulting in hundreds of millions of dollars in losses for individuals who fell for the frauds.
The Journal discovered 175 pump-and-dump scams involving 121 distinct digital tokens after poring through trading data and online contacts between cryptocurrency traders from the beginning of 2018 to the end of June. The price of these sometimes-obscure cryptos surged and sank within minutes in many of these situations. (Learn more: Cryptocurrency Trading Is Australia’s Second Most Common Investment Scam.)
Crypto Pump And Dump SchemesHarder To Stop
Pump-and-dump scams are still active in the stock market, with the Securities and Exchange Commission periodically prosecuting the perpetrators. Because bitcoin marketplaces are unregulated and anonymous, the same cannot be stated.
This time of year, traders are congregating in digital chat rooms on messaging platforms such as The Telegram and Discord, frequently by invitation only. The Journal recognized Big Pump Signal as one of the biggest, with almost 74,000 followers. According to the report, the organization has earned $222 million in deals, inflating up a cryptocurrency only to dump it minutes later.
Big Pump Signal will declare a date, time, exchange, and currency to artificially pump up and then sit back and watch the traders generate a purchasing frenzy around the digital token. When it gets closer to a higher target price, the traders will sell. The fraud takes just a few minutes to complete. Cloakcoin, a relatively obscure cryptocurrency that trades on the Binance platform, was cited by the Journal as an example of a recent pump-and-dump. Big Pump Signal sent out a “signal” in July indicating that the digital currency should be acquired at 3:00 p.m. The currency’s price increased by 50%, while other cryptocurrencies on the platform had no price fluctuation. It had dropped by over $1.00 within two minutes. There were 6,700 deals totaling $1.7 million in value. No deals were made an hour earlier. (For more, see Krugman: Cryptocurrency Has Set Us Back 300 Years.)
Pump & Dump Groups Don’t Hide Their Intentions
While it is difficult to determine the actual number of these trade groups, the Wall Street Journal discovered 63 active organizations. They don’t keep their names hidden either. Some have names like Orion Pump, MEGA Pump, and A+ Signals. The moderators of these communities are often anonymous, charging between $50 and $250 a month for access to the groups. Because they choose the currency to pump and dump, the operators gain the most. It might be dangerous for traders. If they wait too long to cash out on the swindle, their ill-gotten earnings may be lost. Taylor Caudle, who participated in a January operation at Big Pump, told the Wall Street Journal that it “incentivizes the poor followers to keep purchasing until the [target] price is met, which it often never does.” “I lost $5,000 in less than 30 seconds.”
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