Crypto Pump & Dump: Our Undercover Investigation Reveals Thriving Enclaves of Scammers
The Cryptovest team went undercover to investigate some of the largest pump and dump groups still in operation inside of Telegram, exposing their machinations and methods.
For several months, one of the only truly large “pump and dump” groups for cryptocurrencies ever spotted was the so-called “PumpKings Community,” reported on by a number of press outlets highlighting the devious tactics that some people use to gain profit from digital coins. Following their minor investigations, there appears to have been a total silence with regards to the development of such groups.
Once we realized that more than eight months had passed since any major outlet looked at the pump and dump community, we thought it would be a good idea to conduct our own investigation. What we found was a vibrant and explosive growth of this underground community over the last few months, much like mushrooms in the forest after a rainy evening.
To conduct a thorough investigation, we went undercover for a month in some of the newer, larger groups active on Telegram that promise massive profits to anyone who joins.
We will censor the names of the different groups we joined except for PumpKings, for obvious reasons.
A Return to PumpKings
Last time anyone checked, the PumpKings Community was a vibrant hub for all sorts of people who wanted to make a quick buck. It advertised itself as a “pumping” group that only advertised new coins that people should invest in.
However, the posts on the group raised questions about its true intentions. Why did it have one public group and a separate “VIP” group? Why was it so focused on quick profits as opposed to long-term investments?
Even more concerning was the fact that the group’s posts would require pumps to occur at a specific hour, something typical of groups that expect their members to eventually dump the coins at a profit.
The scheme here appears to be a double-mirror setup, in which a private group gets an earlier hour to invest and then the public group would get a later hour. The individuals in the private group would reap the rewards of the public group’s “pumping” of the coin and dump their investments once prices reach a comfortable target for them.
This kind of scheme leads to severe potential losses for those in the public group.
Today, the PumpKings Community continues to operate, posting monthly updates with their “profits” while offering a subscription to get pumping signals. The screenshot below is from June.
The New Kids on The Block
Since the whole PumpKings ordeal, several other groups popped up imitating their double-mirror model.
Among them is one particular group—we’ll call itGroup A—that we found has obvious insiders that invest large sums of money into a small coin, spam the coin’s name in the chat box of the group’s favorite exchange—Cryptopia—and then dumps the sum once it advertises the signal to its 12,661 members.
The timestamp on this particular signal appeared on July 4, 2018, at 9 PM. We looked through MagnetCoin’s price history and found that this was actually the hour at which the original schemers dropped their load and dumped the coin.
It’s quite clear that at the exact moment that Group A advertised the coin for pumping, the people behind the scheme had already begun the process of dumping their coins, leaving investors in the public group with no gains.
This is a model we’ve seen with Group A as well as the PumpKings Community, but what about other Telegram pump and dump groups?
Modus Operandi? Or Just a Fluke?
To launch a more complete investigation, we entered more inconspicuous circles and took a look at their public groups. Let’s discuss Group B, a much larger beast with over 90,000 members.
And here’s the price history for that particular day:
This pump and dump is markedly different due to the fact that it happened on a more established coin that is traded on more exchanges. CoinMarketCap’s price data is calculated by using a weighted average of all the exchanges the coin trades in.
In addition to this, Group B’s dumping appears to be more staggered. This leaves more watchful members with a chance of making a slight profit on some of their dumps.
Let’s look at Group C, which has just under 5,000 members and uses Cryptopia as its preferred exchange, just like Group A.
And here’s the coin’s price history:
This one seems to function much like Group A does. It advertises the coin, dumps it, then leaves investors empty-handed.
In this particular case, there was a slight delay between the signal and some of the public investors’ movements, which caused the coin to experience another bump in price towards the later hours of the evening.
What Our Observations Tell Us
Aside from the three groups we’ve examined, we also had a chance to have a look at several other pump and dump schemes with a similar level of detail. Inside the data, there’s a story.
We noticed that smaller groups tend to prey on low-volume exchanges, manipulating a coin’s price then dumping all holdings once they get the “public” involved. It’s a simple profiteering scheme executed and masterminded by what we could safely assume is an exclusive group of people.
In larger pump and dump groups, the scheme is slightly more complex and less conspicuous. The signs are there, but they are far more subtle and require a keen eye to spot.
Their dumping mechanism tends to be a bit more sophisticated, taking a more staggered approach and allowing some of the “public” group’s investors to ride on the coattails of the more successful dumpers, if they put in their sell orders on time and at the correct price window.
Although pump and dump groups aren’t as conspicuous as they were in the past—some evenadvertising themselves on YouTube—they’re still out there and are gaining traction in underground communities, luring people who aspire to make a quick buck by less-than-legitimate means.
To solve this problem, we’ll need cooperation between exchanges and the communities that support the initiatives that some of these pumped coins represent. A simple pump and dump scheme like we’ve seen in both Group A and Group C could potentially destroy a coin’s reputation.
For the simpler schemes, it’s not very difficult to spot their signs. Exchanges could easily take action against them by establishing different parameters restricting how much selling volume a particular altcoin should handle during a set period.
However, it will be far more challenging to counter more complex pump and dump schemes, at least for the foreseeable future. It’s also doubtful that investor protection laws by governments will be able to prevent these kinds of activities from happening.
The best anyone can do, for now, is keep an eye out for these schemes and spread awareness about their existence to as much of the public as possible while also reporting specific malicious actors to appropriate organizations.
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