Illegal game. How the "Pump and Dump" scheme works in the cryptocurrency market

The Yobit exchange has started counting down – on October 11, it will artificially inflate the price of a random token. The editors of figured out how and why they "pump" digital money and …

The Yobit exchange has started counting down – on October 11, it will artificially inflate the price of a random token. The editors of figured out how and why they "pump" digital money and found out the opinions of experts who turned out to be exactly the opposite

The Yobit exchange with a daily trading volume of $ 33 million on the evening of October 10 announced that in 22 hours it will start "pumping" one random token on its platform. On the site of the site, they even created a separate page on which a countdown goes to the start of this event.

The company representatives wrote that they will buy the selected cryptocurrency for 1 BTC every 1-2 minutes and will repeat this action 10 times. In total, they will buy a specific altcoin for 10 bitcoins, which equals $ 62.8 thousand at the average market rate on October 11. Such manipulations should lead to an increase in the value of the asset, which will then drop sharply, as users will begin to actively sell it at a bargain price.

This scheme is called "Pump and Dump", and it appeared long before cryptocurrencies. In the stock market, cheap securities of small companies are usually used for this, they can be influenced by a small number of investors. However, there it is officially recognized as fraudulent and regulated by the state.

In order to convince users to buy a certain type of asset, fraudsters use fake positive news and "insider" information, which most often has nothing to do with reality. In order to control this area, governments have introduced stricter regulation, and many traders who arranged "pumps" ended up behind bars.

However, the blockchain industry, which began a few years ago, is currently unregulated in most countries of the world. There are hundreds of cheap little-known tokens in it, the value of which is easy to influence. The development of instant messengers, in which one can remain anonymous and attract a large number of investors, also played a role.

The Pump and Dump scheme has become very popular in the digital money space, and there is talk in the community that the value of cryptocurrencies is being manipulated. On September 18, 2018, the Attorney General of New York published a study of the work of cryptocurrency exchanges, according to which most of them do not have services for tracking manipulations.

Usually, scammers choose an exchange and a cryptocurrency, the cost of which they will artificially inflate. First, they buy a token in small portions so as not to affect its rate ahead of time. Then they start the "pump" itself – through their channels they inform investors about the imminent rise in the value of a certain cryptocurrency on a particular exchange. All participants in the fraud must acquire this asset at a specific time.

The reasons for the rise in prices are not always invented, criminals can use a real news feed to explain the nature of the rise in cryptocurrency prices. Investors are actively buying a certain asset; due to the large inflow of funds, its rate rises sharply. At this moment, the organizers sell the asset at an inflated price, a "dump" occurs – its value collapses.

Almost always, even despite the lack of regulation of the digital money market, "pumps" are hidden from prying eyes – in closed chats and so on. Users can only guess about the reasons for the increase in the value of certain tokens after their price has risen and collapsed many times.

Therefore, the case with the Yobit exchange is unusual. In the comments under the post, many users could not believe in such blatant arrogance – they hoped that someone had hacked the exchange's Twitter account, but the link to the countdown page convinces of the opposite.

Yobit is an exchange adapted for the CIS, according to the statistics of the trading platform, it is used by many Russian-speaking traders. You can find negative reviews and comments about it on the network, users write that the interface is very slow, and some complain that they cannot withdraw funds for a long time.

Perhaps such a move with the announcement of a "pump" of a random currency is in fact a bluff. Maybe the management of the marketplace is trying to show in this way how insecure the digital money market is and how easy it is to manipulate it. In this case, when the countdown is over, no promised pump will actually happen.

However, these are only guesses, how it will actually be, we will find out very soon. Olga Prokhorova, an expert at the International Financial Center, believes that the fraudulent scheme plays into the hands of only a limited number of insider traders, and most of the participants suffer losses.

“This is a classic example of capitalizing on the losses of others. If such a scheme is implemented by the Yobit exchange, it will lead to even greater disappointment of investors in the field of cryptocurrencies, since it will once again demonstrate its weak regulation, and, in a way, anarchy. Participating in the "Pump and Dump" is like participating in a pyramid scheme – you can earn money, but it is extremely unlikely, "says Prokhorova.

FinIst analyst Alexander Ageev disagreed with her. He believes that "Pump and Dump" is a completely normal situation, the manipulation of currencies that are not in the top 10 will not have any impact on the community and the market. According to the expert, the Yobit exchange may be trying to attract new clients who want to make money.

“This does not threaten her with anything bad, it may even have a positive effect on her,” Ageev noted.

According to Murad Salikhov, Advisor to the Chairman of the Board of the Financial Innovations Association, Yobit does not care about its reputation. The management of the exchange only cares about how to get rich in the cryptocurrency market, which is now in decline. The specialist added that the cost of bitcoin is not growing, including due to the incorrect behavior of some trading platforms.

Artem Deev, a leading analyst at AMarkets, called the publication of the exchange an interesting initiative that is interesting to watch. The expert emphasized that the cryptocurrency market is distinguished by the high creativity of all its participants.

Experts expressed opposite opinions about the situation with the Yobit exchange, the main thing is that it demonstrates how much the digital money market needs regulation. Perhaps the authorities will pay attention to this event and make certain decisions to make the cryptocurrency industry more secure, this will help its wider adoption.

Leave a Comment