It is illegal with shares, but with crypto coins nobody can do anything about it: ‘pump-and-dump’ practices. In addition, a group of people tries to make money by manipulating the value of a coin and selling it for a profit. After that, the value collapses and the loss is ‘dumped’ on the buyers who got in last.
It has been known for several years that this is happening. Nevertheless, the Dutch regulator AFM, which monitors the financial markets, which include share trading, for example, says it still cannot do anything about it because crypto coins are not subject to AFM supervision. The European Commission is now examining whether this should change in Europe.
This kind of market manipulation, where organizers often know more than the rest of the market and deliberately spread misleading information, has been around for centuries. It is not new with crypto coins either. Several studies already appeared in 2018 showing that the ‘pumping and dumping’ of cryptos was widespread, especially in groups on the Discord and Telegram platforms.
Popularity seems to be on the rise
It seems that more groups like this have been popping up recently. “I didn’t research it, but I do see that the groups are showing up more often and getting more advertisements forwarded again,” said Josh Kamps of University College London. He is investigating fraud with crypto coins.
This may have to do with the increased popularity of crypto coins, according to expert Peter Slagter, founder of the knowledge platform LekkerCryptisch. He sees that pumping and dumping mainly happen during periods when there are many consumers active in the market. The many links to groups are easy to find on social media.
According to Kamps, a possible explanation is also that the price of crypto coins has risen. “Then you see new people stepping in. The manipulations also come to the attention of the general public and thus become mainstream. They work best with inexperienced people, who are not yet very familiar with crypto coins.”
This is how a pump and dump works
Here’s how the manipulation works: In Telegram and Discord groups, anonymous administrators announce the date and time when the ‘pump and dump’ will take place in advance, so participants can get ready. Only at the announced moment do the administrators announce which crypto coin everyone should buy.
The administrators then encourage everyone to promote the cryptocurrency on social media as much as possible, so that even more people invest in it and the price shoots up further. This allows first buyers to get rid of the coin for a much higher amount. And that is paid by the people who buy and sell just a few seconds later: they take the loss.
Below you can see how in a Telegram group with more than 150,000 members on April 21 at 11 p.m. the crypto coin Viacoin was pumped and dumped. Some of the members may be fake.
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