The Social Science Research Network (SSRN) has recently published a study that examined the phenomenon of Pump-and-Dump groups in the crypto community. The seven scientists of the University of Tel Aviv, the University of Tulsa and the University of Mexico conducted a study which came to the conclusion that “the regulatory authorities should be very concerned that the price manipulation via Pump – and-Dump systems is so widespread.”
What is a Pump-and-Dump scheme?
drive A Pump-and-Dump System is a type of price manipulation, in which a group of traders trying to the price of the asset through a coordinated Buy to the top. As soon as external investors will notice the rise in price, and sells the Insider-group of the previously lower prices of purchased positions and thus achieves a profit.
It is important to emphasize that the Pump-and-Dump schemes are illegal, and by the U.S. securities and exchange Commission (SEC) as a securities fraud.
SSRN study: Pump-and-Dumps, are in Telegram and Discord far
The SSRN study focused on the extent of the Pump-and-Dump schemes, in which crypto-currencies were involved. During their Research, the scientists found that such Insider groups are also organised, normally by two in the crypto-Community popular Messaging Apps Telegram and Discord. “These platforms are the most important sales possibilities for Pump – and-Dump systems,” argues the newspaper.
After they had “gathered as many of the pumping signals as possible of all the channels of these platforms,” the researchers examined 1.051 and 3.767 Pump-and-Dump systems on Discord, or Telegram, from mid-January until the beginning of July 2018 nearly six months of operation.
There were three different types of Pump-and-Dump-channels: “obvious Pumps”, “Pumps” and “patterned Pumps”.
The first category used to be open to the words “Pump” and “Dump” and was therefore to identify the “easiest to use”. These channels had allegedly Announce, just a few Pump, initially between 24 and 48 hours prior to the actual pumping to occur, the researchers argue. Then further updates would follow in terms of the time and place (e.g., the Name of the crypto stock exchange). The Name of the Coin was listed directly before the Pump. In addition, most of these channels were supposed to have “Premium membership plans”, which are either purchased or through the recruitment of new members deserves.
objective-Pump channels, in turn, were “not as bold as the first category,” even though they allegedly had a lot more signals. In these chat rooms were usually avoided the words “Pump” and “Dump” because its members “are not sure if pump and dump is legal”. They gave supposedly known by the name of the asset and the current price, without prior notice and “normally, the exchange was also named”. In contrast to the first type, these channels had “normally, there is no Premium membership option”, some of us had to be for a regular membership paid. the
Finally, there are patterned Pumps — the channels that just gave the pump signals from other sources. These were avoided by the researchers mainly because they searched for data from original sources, but, nevertheless, it has been studied, “full coverage” so that
can be made of all sources of pumps.
After the identification of these schemes in the study, measure their results, defined as the percentage price increase after a Pump. In the case of Telegram and Discord 10 percent of the Pumps have increased the price in just five minutes by more than 18 percent and 12 percent. Since the volume of trade and the crypto prices in the period from January went until July of 2018, were considered minor percentage increases as “a performance for the Pump”.
In addition, the researchers found that the Pumps that use the “veil-like” Coins “” were much more profitable than the pumps of the dominant Coins: “The average price rise amounted to 3.5% (up 4.8%) for Pumps with Discord (telegram), which used the top-75 coins; It was 23% (19%) Discord (Telegram) for coins with a rank of about 500. ”
Interestingly, Bitcoin (BTC), was not traditionally the Domina immune to most capital on the market against Pump — and – Dump systems. According to the study, there were over the period examined at least 82 BTC pumps on Discord and Telegram. These Pumps accounted for only 1.7 percent of all identified measures and their scope was not specified in the paper.
“The proliferation of crypto currencies and technological changes have for individuals relatively easily
(and practically free), Pump – and-Dump schemes made to coordinate and carry out” argue the scientists.
you also come to the conclusion that the scope of application of Pump-and-Dump schemes in the cryptographic community, the regulatory authorities should demonstrate, if Mainstream financial institutions to invest in crypto-currencies, red flags.
“In fact, they call it” regulatory vacuum “as one of the possible reasons why some of these groups are open to:
“With the exception of the insurance that taxes are paid on crypto-currency gains, the American regulatory policy in respect of crypto-currencies and Initial Coin Offerings (ICOs) are rather more cautious. A Problem with the regulation is that crypto-currencies – in contrast to stocks, commodities, or foreign exchange, no regulatory authority is for all crypto-currency policy.”
the study by the Imperial College London: On the Pump-and-Dump System, a trading volume of around 6 million Euro per month
Pump-and-Dump systems on the crypto market recently by the researchers Jiahua Xu and Benjamin Livshits from Imperial College London examined, their article at the end of November was released.
The study showed that Pump-and-Dump systems make up trade a volume of approximately 6 million US dollars per month, which is about 0,049 percent of the entire 24-hour trading volume.
Xu and Livshits studied between the 21. July and the 18. November 237 Pump-and-Dump procedure, including the telegram channel “Official McAfee Pump signals”, the pumped up to this time, allegedly, the BVB-Coin. The researchers concluded:
“The study shows that Pump-and-Dump-organizers can use their inside information at the expense of other pumpers easily. the
In addition, called Xu and Livshits will be tried at the historical data of a known Pump-and-Dump schemes, in order to train an algorithm for machine Learning, with the fraud identify before they occur.
Regulatory action: The Warnings and whistleblower program the CFTC, the law drafts on the way
The price manipulation is for regulatory authorities is a big Problem. Although this seems to be in regulated, fully compliant markets to be much less common, the crypto market is still a largely unregulated area in which Insider trading is likely to be easier. The Supervisory authorities have, however, started to.
On the 15. February of this year, the Commodities Futures Trading Commision (CTFC) issued their first Declaration on the protection of the virtual currency of the customer in front of Pump-and-Dump systems:
“The customers that these scams online have developed and disseminated are should know. Even experienced investors can be targeted by professional fraudsters, who are experts, when it comes, seemingly credible information to use in order to deceive. “
The warning even quoted messages from an Online chat room, where a Pump-and-Dump scheme was co-ordinated, to give an example:
“Still 15 minutes to Pump! Get ready.” “Five minutes to the Pump, the next message contains the name of the Coin!” Tweet about us and send everyone the Link to the telegram (sic) for outsiders to see, what we pump, so that you can join !! You (sic) let the MOON rise!!!!!”
Apart from the warning of potential investors from the dangers of such market-manipulation systems implemented by the CFTC, a 10 – to 30-percent reward for a Whistleblower, which can lead to the CTFC, especially in the crypto market to monetary sanctions of at least US $ 1 Million .
In addition, the Congressman Darren Soto, and Ted Budd in November 2018, two non-partisan bills to market manipulation of crypto-currencies developed, with the aim “to position the United States as a leader in the crypto industry.” In its press release, the report by the New York attorney General about the risk of Manipulation of the virtual stock exchange and a Wall Street Journal article about Bots, tampered with, allegedly, the price of Bitcoin is called, as a reason for concern.
The laws will be under “The Virtual Currency Consumer Protection Act of 2018” and “The U.S. Virtual-Currency Market, and Regulatory Competitiveness Act of 2018”. The drafts will be reviewed by the house of representatives.
“The Virtual Currency Consumer Protection Act of 2018” calls on the CFTC to continue to investigate price manipulation in virtual markets and then make recommendations for regulatory Changes that could improve their monitoring processes to prevent such fraud.
The second design advocates, in turn, a “comparative study on the regulation of virtual currency in other countries,” to give “recommendations for regulatory Changes to promote competitiveness”.
While the supervisors seem to move overtly slowly, began some of the crypto market participants to deal with the issue of price manipulation with the help of Mainstream actors. In November, Nasdaq announced that the second largest exchange in the world, that their market surveillance technology manipulations on crypto markets, “extinguish”, in particular, Pump-and-Dump systems. The first cryptographic Client of the stock exchange, which has introduced its monitoring system, is Gemini, the Compliance-oriented US-crypto exchange, the Winklevoss twins.
