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Pumping and Dumping of Cryptocurrency Inside the Group Chats

In every few days, around 200,000 strangers come together online to purchase cryptocurrencies also referred to as altcoins at a fixed time. Later within 30 to 120 seconds, they try to sell what they bought. Such seemingly ‘bizarre’ trading in the world of altcoins is called ‘pumping.’ The strange aspect of this act is that participants who believe that they are wolves are in reality sheep-like.

Pumping is a process in which a large group of people agrees to purchase a coin at a pre-decided time. As people in the pump group buy the currency at the same time, its price gets pumped up. Next, the same set of people sell the coin at a higher value than their buying price to earn profits, and this is known as dumping.

The agenda of these pumping groups is simple, ‘buy low and then sell high.’ But the actual process is more complicated than this. The deceit of pumping and dumping begins with organizers growing their groups to an acceptable size of at least 2,000 people through false promotions and scammed links. As the organizers along with the misled crowd buy these tokens, the price begins to rise, and more investors join the purchasing out of the fear of missing out on a profitable altcoin.

These coins are more generally called altcoins (also referred to as ‘shitcoins’) and are easy to generate as well as usually worthless. With several channels like Telegram available to implement such acts, pumping and dumping are made incredibly easy for the organizers to execute.

The elected group leaders provide instructions to all the other members about the exact time of the pump, pump signal, and target price. As soon as the pump signal is given, the members buy these coins at the lowest possible prices to later dump them at peak or near-peak prices.

Given the ease with which such malicious trading practices can be implemented and the several channels available for them, CFTC (Commodities Futures Trading Commission) has repeatedly declared the risk involved for investors.

“Customers should know that these frauds have evolved and are prevalent online. Even experienced investors can become targets of professional fraudsters who are experts at deploying seemingly credible information in an attempt to deceive,” CFTC mentioned in the first released statement regarding Pump and-Dump Virtual Currency Customer Protection.

On January 13, 2018, a significant pump signal was declared for GVT, a Russian altcoin. Thirty-four seconds before the pump signal, the coin was trading at a price of $29.22, and within 4 minutes and 16 seconds after the pump signal, it reached $35.05. The price reached its peak of $45.41 post 9 minutes and 16 seconds of the pump signal. Those who purchased at the lowest price and dumped right at the peak could have earned a profit of 55.51%. This is the maximum profit that someone could have reaped.

“Eighty to ninety percent of the people lose, and they’ll probably think, ‘Oh I just waited too long to sell it. I could just do it again. Let me try it again,’” shared Chris Koerner, an altcoin expert during an interview.

December 2017 witnessed a rapid rise in scams like dumping and pumping, which ended up draining funds of investors who were seeking to invest in crypto assets. While it is possible to track the wallets that are facilitating this process, it’s a laborious and time-consuming task. Additionally, by the time one finds out if the rise in value was driven by pumping or was authentic, the process would possibly have ended by then.

In the current scenario, a majority of the existing investors are aware of these processes and can recognize a pump call by looking at the promotional statements. However, it’s critical for potential crypto investors to be made aware about the same so that they don’t lose their trust in digital coins altogether. Here’s what such a scam looks like.

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