The crypto market differs from the traditional, mostly, only volatility, and the lack of regulation from the state, of course. It is this volatility that prevents many new faces from entering the crypto market. The high volatility of the asset suggests that you can make very fast money on it, but faster still lose everything. Therefore, beginners in trade, who had no practice in the traditional market, on arrival in the crypt and plum of the first deposit begin to tell that cryptocurrency is «bubble», all tricked, dumped, etc.
Presence of «bubbles» and frauds in the industry is not discussed – crypto market a little more than 10 years, what did you want? There are a lot of crooks in the traditional markets too, but they’re smarter and more dodgy.
Specifically, today we will talk about such a phenomenon as a pump and dump on the crypto market. What is it and who is behind them-we will understand further.
Definition
Pump and dump is a form of manipulation of market assets that was first used in the American stock market. The principle of this method is simple: artificially inflating the price of an asset.
Pump is the rapid growth of an asset that is not backed by any fundamental factors or news. That means that someone is purposefully buying an asset.
Dump is the opposite of a pump. An asset, in huge quantities, is sold, which leads to a decrease in its price. Usually follows after the pump.
In the crypto market, there are many tokens and cryptocurrencies that can be easily manipulated. An inexperienced market participant may wonder: So why is it immediately manipulated? Maybe someone decided to take an asset, and believe in its future. Well, the logical answer is that fairy tales are hard to believe. Bitcoin capitalization, for example, is $920 billion. The purchase of the $1.5 billion BTC from Tesla led to a 15% increase in the value of the main cryptocurrency. And this happened not against the backdrop of the crypto market, but against the backdrop of the good news, which triggered a chain reaction, which was a bunch of investors going to the exchange and buying bitcoins. In fact, $1.5 billion did not affect the rate of Bitcoin much, but was influenced by the news. This amount, for market manipulation, is not affordable by any individual or company, so the high volatility of bitcoin is due only to the trade process or the news background.
Now take IDEX, for example. 401 cryptocurrency, according to CoinMarketCap, capitalization of $47,500. In fact, capitalizing the entire project crypto is worth one bitcoin. Given that the token has some volatility and even trades on Binance, it has hollers. Suppose the unsub buys IDEX for $25,000 – more than half the capitalization of the project. The price of the token soars, and the rest of the market enters long-term positions, hoping that the bovine trend will continue. Next, the unsub sells the entire stock of IDEX, making a profit, knocking down the price on the token and leaving with his interests all the Lonists. In fact, a pump is impossible without a dump if it is a planned event. Coins are bought – a pump, the price goes to the right level and they are sold – a dump.
It’s a simple scheme, isn’t it? It’s only used in a crypto market, because in traditional markets it’s illegal and punishable. However, the US stock market recently had an example of a pump: shares GME and guys with Reddit. I’m not going to tell the whole story, only a lazy man hasn’t read about it. In short, the forum decided to increase the value of GME, allegedly the company is undervalued and $5 per share – it is too little. Prank was out of control because GME was worth $480. But in this case, it’s not 100 percent of the pump. Here, people decided to teach hedge funds that drown their favorite companies. Although the price had been rolled back, the objectives had been purely altruistic. But the goal in pumps and dumps in the crypto market is one: to make as much as possible from inexperienced traders and investors.
It is worth mentioning that this scheme was widely distributed earlier, that is in 2016-2019. Now the crypto community can distinguish the logical growth of a coin from market manipulation.
Pump and dump scheme
Although the essence of this method is not very sophisticated, it requires serious preparation if its creators want to make a good living. Initially, organizers and promoters participate in the scheme, and they need to find investors. Closed groups are created in social media or Tg-channels, in which participants are promised to tell about upcoming pumps or dumps, that is to share inside information. Not only do they sign members of the group to a pre-fatal event, but they also take – everybody monetizes – money to participate in such groups.
Step by step, I will describe the above scheme:
Preparation for the pump. The organizers choose a token or cryptocurrency that will be pumped. As we have already figured out, these are projects with a low market capitalization. For some time, the organizers of the pump gradually buy up the selected coins. This is done in order not to drive up the price early and get the largest quantity at a low price.
The first phase of the pump. After purchasing the necessary number of coins, the organizers launch signals about the purchase of the given coin, through their channels and groups. The group actively buys the coin, which contributes to price growth.
The second phase of the pump. After the chosen coin has reached a certain price level and cannot go further up, the organizers start advertising outside their channels and groups. This is done through various forums, websites, social networks and mediocre media. Advertisements must specify the reason for the pump: it can be real (for example, listing a token on one of the major exchanges) or made-up. Third-party investors are starting to buy coins, pushing the price even higher.
Dump. Organizers control the line of support, that is, when the price falls to a certain level, purchase orders are issued in large quantities to create the appearance of demand for the coin and push its price higher. As soon as this line of support starts to work, the organizers sell all their volume, which organizes the dumping of coins.
TOP 5 cases of pump and dump
Mindol
The ERC-20 standard token is used as the settlement currency in the Mindol network. Within the ecosystem, projects, with the help of this token, can be donated to your favorite idol, who creates the content of the Japanese subculture: comics, anime, games, music, and so on. Apart from the fact that the project was created in 2018 and the name of its creator (Fumihiro Fukuhara), nothing more is known about it. There was absolutely no news of the project, no cooperation with anyone – absolutely nothing. However, this did not prevent the project from taking its place in the top 20 cryptocurrencies at the end of 2019.
At the end of October 2019, the MIN token was worth $0.16, and in December of the same year it was worth $4.9. 2,000% in a month and a half, not a bad breakup for a project nobody knows. After that, the price of the token began to decline. The new pump took place in late 2020. On December 23, the MIN token cost $0.55, and on December 24, it was $7.88. Holding to $7.93 until January 4, 2021, the value of the token also quickly collapsed to $0.56. In both cases, there was no expectation of an increase in the value of the asset.
BLOCKv
BLOCKv is a project created on the Ethereum blockchain, and has its own native VEE token. BLOCKv’s activities are aimed at virtual reality, namely the creation of digital assets. Under digital assets is everything that’s present in real life: a machine, a pen, a tree, etc.
On November 15, 2019, the value of the VEE token increased from $0.0012 to $0.014, that is, by 7500%. It is noteworthy that it took the token only an hour of time to do this. After another hour, the value of the token rushed to the original values, up to the pump. In a detailed investigation, it was found that on the above date the token’s sales volume increased sharply, by 18,800% or $66,000. Behind the artificial increase in trading volume was the crypto exchange ChainX. This exchange has nothing to do with the BLOCKv project, so whether it was joint manipulation or whether the exchange chose VEE itself is not clear.
BitTorrent
This project was acquired in 2018 by Justin San, the creator of Tron and a rather controversial personality in the crypto world. The platform has an internal BTT token, which serves for mutual calculations between users. Since the project changed hands, inexplicable price manipulations have been observed.
One thing Justin likes to do is announce announcements. He used his Twitter to raise the cost of tokens for his projects. However, the latest price hike has not been explained and the crypto community is still in disarray – no one understands how it is treated.
On February 1, 2021, the cost of BTT $0.0003. On February 12 of the same year it was $0.0012. For 11 days the token growth was 4,200%. Justin himself stated that BTT is a tool for the project network, so they don’t care how much it costs. However, there is not yet, and probably not, a comment from him.
MMOCoin
MMOCoin is an ERC-20 standard token created by the MMOPro community of gamers. With this token, community members could buy and sell various digital goods or services.
In 2019, the MMOCoin token grew by 100% twice in just an hour. But once the guys decided to manipulate the prices in a big way. From November 16 to 22, the price of the token rose from $0.001 to $1.2, that is, by 12,000%. It is clear that then the coin, within a few days, returned to the previous values, but the organizers were able to make money on such a pump well.
ShineChain
ShineChain is the token of the ERC-20 standard of the same name platform, the purpose of which is to develop the market of global mutual insurance, and it will function on blockchain. No further information on the project is available online.
Between March 23 and April 12, the token managed to increase in price from $0.0001 to $0.04, or by 400%. During the following week, the token price returned to its previous values. Since there was no information about the project or the news related to it, one can draw a disappointing conclusion – it was a purposeful manipulation of the price.
Conclusion
As you can see, it is not so difficult to manipulate the price, the main thing is to have more or less intelligible means for this and to prepare the ground. There is one interesting feature: all of the above pumps and dumps occurred with Chinese or Japanese projects. The skills in these countries had the best idea how to make a buck and they would not get anything for it, because the crypto market is not so strictly regulated yet. So be careful if you want to invest in a new crypto project, especially if it’s Asian.