What are Crypto Pump-and-Dump Groups?
Crypto pump-and-dump groups are a type of informal, digital investment clubs that have become increasingly more prevalent in recent years. They primarily focus on cryptocurrencies and digital tokens. In many cases, their sole purpose is to artificially increase the price of a certain token, project or cryptocurrency.
Understanding the Mechanics of Pump-and-Dump Groups
The mechanics of these groups are fairly simple. Members are generally recruited via Telegram channels, or other messaging platforms, in order to create a large buying and selling group. When the group is large enough, the administrator announces an upcoming pump, which is a synchronized buy of a certain token or cryptocurrency. As the members quickly purchase the token, the price of the project rises exponentially.
The goal for the group members is to not only capitalize on the quick influx of buyers driving up the price of the token, but also to generate profits from selling the token at its peak. After the pump, the majority of members dump the tokens they were pumping, and the price slowly crashes back down to its previous level or lower. This technique is known as a “pump-and-dump” and is sometimes referred to as “trade pumping”, or “price manipulation”.
Examples of Crypto Pump-and-Dump
One of the most famous examples of a crypto pump-and-dump group occurred in 2018, when the group “Big Pump Signal” manipulated the price of several digital tokens. Within a week of the group’s creation, it had 600 members and had orchestrated the pump of several coins, including Ripple, Litecoin and Civic.
The pump and dump scheme involving Big Pump Signal caused hundreds of members to invest in the tokens at inflated prices. This resulted in many people experiencing significant losses when the pump ended and the tokens dropped back to their pre-pumped levels.
Are Crypto Pump-and-Dump Groups Legal?
The answer to this question is not a straightforward one. While these types of schemes are widely seen as unethical and are considered market manipulation by many, in some countries and jurisdictions, these activities may not be considered illegal.
That being said, most countries have laws that can be used to punish participants in crypto pump-and-dump groups. For instance, in the United States, pump-and-dumps are prohibited under two specific laws. The first law is the Securities Exchange Act of 1934, which prevents fraud and deception in stock and securities trading, and the second is the Securities and Exchange Commission (SEC) Rules and Regulations, which defines the regulation of digital assets.
Crypto pump-and-dump groups are a type of informal investment clubs that focus on artificially increasing the price of certain digital tokens or cryptocurrencies. While not necessarily illegal in every country, these activities are seen as market manipulation and are generally frowned upon. It is important for investors to be aware of these practices and do research before participating in any schemes of this kind, as these pumps can cause significant losses.
