Another Pumps and Dumps True Story

We can firmly say that both regulators and investors have suffered a lot because of pump-and-dump schemes beginning with the 2017 skyrocket of many cryptocurrencies.

Many traders witnessed these cases of hours-long build-ups, and flash-like drastic dumps made just in seconds. These “attacks” (costly and painful for retail investors) were mostly prepared in the private Telegram chats and were effective even on the largest trading platforms.

The Massachusetts Institute of Technology (MIT) reports that the researchers affiliated with Imperial College London tried to utilize artificial intelligence and machine learning and analyze the cryptocurrency pump and dump schemes in order to find a way to detect them preliminarily in future.

The Results Of the Research

The names of researchers from Imperial College London are Jiahua Xu and Benjamin Livshits. The figures they name are scandalous. According to their observations, there are about two pump-and-dump schemes occur at the crypto market every day. The daily (!) volume that circulates in these schemes equates to $7 million.

Xu and Livshits claim that hundreds of pump and dump schemes are made every quarter, and the only way to completely secure yourself from the effects of these schemes is to stay away from any suspicious trade session. Any activity that might look like an artificial price rise should be a trigger to avoid the following participation in trading of this asset for a while.

One of the vivid examples from the Xu and Livshits research (they’ve looked through the 236 pump and dump schemes) is the case of BVB, a coin that can’t be called popular by any measure. It was revealed that this asset managed to skyrocket and reach its maximum for a while right after one of the Telegram groups announced that it’s time to start pumping BVB. This asset went from the bottom to the peak value in 18 seconds. Such speedy growth is a sign of the trap.

Xu and Livshits say:

“We notice that the first buy order was placed and completed within 1 second after the first coin announcement. After a mere 18 seconds of a manic buying wave, the coin price already skyrocketed to its peak. Three and half minutes after the start of the pump-and-dump, the coin price had dropped below its open price.”

The choice of a coin is not accidental. The people behind the scheme choose cheap coins (under $1 million in daily circulation) because it’s much easier to manipulate its price and fuel the fake hype. Traders affected by fear to miss a good chance are an easy target for such manipulators.

What makes the situation even more fascinating is that even those who prepare the scheme in the Telegram groups usually create agreements in smaller groups BEFORE they start the campaign in Telegram. So several main initiators will earn even from those who support their actions in Telegram.

What We Gonna Do?

Most of the information provided by the Imperial College London researchers were gathered by a machine-learning algorithm that analyzes the past data on the pump and dump schemes and immediately recognize the schemes’ patterns prior to the starting of the new pump and dump campaigns.

If you don’t have such an algorithm (you probably don’t) the solution is simple: if the asset has low price and low market cap, but suddenly it rushes to the moon without any real reason then you’re dealing with a malicious scheme and you shouldn’t participate in it.