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Pump and landfill schemes have always been around, with scammers making a fortune while the victims have nothing left. The cryptocurrency market is not immune. A new analysis by the Wall Street Journal found that commercial groups manipulated the price of digital tokens for $ 825 million in trading activities over the past six months, causing losses of hundreds of millions of dollars for those who had fallen for the scams.
Regarding trading data and online communications between cryptocurrency traders from the start of 2018 to the end of June, the Wall Street Journal found 175 pump and landfill patterns covering 121 different digital tokens. In many of these cases, the price of these encrypted, sometimes obscure, increased and decreased in a few minutes. (See more: Cryptocurrency trading is the second most common fraud investment in Australia. )
Crypto Pump and Dump Schemes Harder To Stop
Pump and dump systems are still alive and vegan in the stock market With the Securities and Exchange Commission that regularly chases the bad guys. The same can not be said of the cryptocurrency markets, as they are unregulated and anonymous.
This time traders meet in digital chat rooms on messaging services like The Telegram and Discord, often by invitation only. One of the largest identified by the Wall Street Journal is called Big Pump Signal, with over 74,000 followers. The group, according to the Wall Street Journal, has grossed $ 222 million in pumping a cryptocurrency just to sell minutes later.
Big Pump Signal will announce the date, the hour, the exchange and the coin to artificially pump and then sit down and allow traders to create a frenzy around the purchase of the digital token. Once you get closer to a higher target price, traders will turn and sell. The scam takes place in a few minutes. The Wall Street Journal has indicated cloakcoin, a relatively unknown cryptocurrency that trades on the Binance exchange as an example of a recent pump and dump scheme. In July, Big Pump Signal sent a "signal" that the digital currency should be purchased at 15:00. The price of the currency rose by 50% while the other cryptocurrencies on the stock exchange saw little price movements. After two minutes it decreased by almost $ 1.00. There were a total of 6,700 trades valued at $ 1.7 million. Only one hour before no transactions had been made. (See more: Cryptocurrency has brought us back 300 years: Krugman .)
Pump & Dump groups do not hide their intentions
While it is difficult to identify the exact number of these groups trading, the Wall Street Journal found 63 active groups. They are not even secret about their names. Some range from titles like Orion Pump, MEGA Pump and A + Signals. The moderators of these groups tend to remain anonymous, charging anywhere from $ 50 to $ 250 a month for group access. Traders benefit more because they choose the currency to pump and discharge. For traders, it can be risky. Wait too long to cash in the scam and they can see their bad earnings evaporate. "Encourage the poor followers to keep buying until the price is reached [target]which often does not happen," Taylor Caudle told The Wall Street Journal, who took part in a January Big Pump operation. "I immediately lost $ 5,000 in about 30 seconds."
Investing in cryptocurrencies and Initial Coin Offerings ("ICOs") is highly risky and speculative, and this article is not a recommendation of Investopedia or the writer to invest in cryptocurrencies or ICOs. Since the situation of each individual is unique, a qualified professional should always be consulted before making any financial decision. Investopedia does not make any representations or warranties regarding the accuracy or timeliness of the information contained in this document.
