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Since the end of the cryptocurrency bull from December 2017 to January 2018, shady investors have used pump and landfill schemes to cheat the regular investor. These pump and landfill schemes are not only common among shady brands, research has shown that even the major cryptocurrant exchanges have been used as methods to increase prices in just a few hours and download them in seconds. Most of these programs are organized by groups of Telegrams at the expense of the normal retail investor.
$ 7 million for pumping and dumping on a daily basis
As reported by the Massachusetts Institute of Technology, Benjamin Livshits and Jiahua Xu of Imperial College London, have found that $ 7 billion in the daily trading volume in the cryptocurrency industry comes from pump and landfill schemes. The goal of the research was to understand how these patterns occur in order to stop them before they even begin.
Research has shown that hundreds of pump and landfill patterns occur every quarter and that the only way investors can protect themselves is to avoid activities that also show the smallest signs of artificial price accumulation. The study was conducted on 236 schemes, one of which was a cryptocurrency called BVB. Studying the progress of this coin from July 21 to November 18, the researchers established that a group of pumping and landfill Telegram announced to its members that it would launch a pump on BVB. A few seconds later, the price of the coin skyrocketed and reached its peak in 18 seconds. Part of the research was as follows:
"We observed that the first orders were completed within a second after the announcement on Telegram, in about 18 seconds the wave of purchases had brought the price to the maximum.After about three and a half minutes, the price of the currency fell below its initial price. "
Keep in mind that these pump and landfill patterns are illegal and that the CFTC frowns. However, they are more common among coins with a low market capitalization that do not register more than one million in daily trading volume. These coins are easy to manipulate by people who create artificial upward trends in seconds. When the price suddenly rises, other unsuspecting retailers will buy to take advantage of the bulls' race by taking the price even higher. Then those who started the pump will begin to sell off, leaving retail investors to lose landfill.
According to the research, some insiders collected cryptocurrencies before the pump was started in an attempt to get more out of it. These firefighters have earned more than their pumping buddies.
What's the solution?
Using machine learning and artificial intelligence, Livshits and Xu were able to detect potential pump and drain patterns before starting. However, many retailers do not have access to this technology. What can these do to protect themselves from such patterns? Well, the researchers have suggested that these investors should avoid buying coins that have low volume and low market capitalization but suddenly start to register many exchanges.
For now, it is difficult to hold those responsible for pump and landfill patterns responsible. The CFTC has warned the groups involved in the past, but no strict laws have been passed to do justice to those who have initiated them.
