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Study: Pump And Dump Schemes Account For $7 Million In Monthly Volume

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Basil has three years of freelance experience writing on disruptive technologies. He focuses on breaking news and education pieces; helping to spread the gospel of Blockchain. He hopes to have his own blockchain company one day; helping the world through its innovative ledger technology. https://twitter.com/basil_kimathi

On Dec. 4, the MIT Technology Review published findings of a new study that has found that pump and dump schemes in cryptocurrencies are accounting for $7 million trading volume every month.

The research was conducted by Benjamin Livshits and Jiahua Xu both of Imperial College London. According to coinmarketcap.com, the daily trading volume stands at $14.2 billion. So, the pump and dump volume realized by the study accounts for only 0.049 percent of the total 24-hour trade volume.

Pump And Dump Schemes Are Prevalent In Cryptocurrencies

A pump and dump scheme represents a form of securities fraud. According to the new study they have become prevalent in the cryptocurrency space.

Typically, the organizers’ such schemes usually choose a coin, ‘pump’ boost its price and then ‘dump’ sell the overvalued currency. The result is that the price of the coin falls further leading to more losses for other investors.

The two researchers focused their study on a pump and dump scam that involved the BVB coin that occurred on Nov. 14 of this year. They gathered details of the scheme by following announcements on several Telegram channels, including the official McAfee Pump signals. They then recorded the changes in price trading volumes of the coin.

According to McAfee Pump Signals, the BVB coin had been dormant for over a year by the time the scheme took place. The currency showed less trading activity with a value of about 35 Satoshi ($0.00132202).

The analysis shows that the first buy order was placed and completed within one second after the first announcement was made.  Then the price of the coin surged to its peak after just 18 seconds to reach 115 Satoshi (0.00434378).

It took only three and a half minutes from the start to the end of the scheme. Within the short period, the schemers had taken their profits, and the price of the coin dropped below its opening price. The researches add that those that joined after 18 seconds hardly made any profit.

The two researchers also investigated another 236 pump and dump scams that were conducted between July 21 and Nov. 18. They concluded that “many of them were preceded by unusual buying activity in the target currency.”

Adding:

“The study reveals that pump and dump organizers can easily use their insider information to take extra gain at the sacrifice of fellow pumpers.”

They concluded that it’s possible to spot target coins before they are revealed by looking for unexpected trades in shadowy currencies.

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