The lack of liquidity and regulation still makes digital assets an easy target for market manipulations resulting in the widespread reach of pump-and-dump schemes. According to the research findings by Social Science Research Network, nearly 5000 pumps have been identified on popular social communication platforms, Telegram and Discord, during a six-month period in 2018. In some cases, the prices surged by more than 18% in just 5 minutes with an overall of more than 300 cryptocurrencies promoted only to come crashing down.
The US Commodity and Futures Trading Commission issued a warning on virtual currency pump-and-dump schemes explaining that the virtual currencies should not be purchased based on social media tips or sudden price spikes. Instead, investments should be based on proper research to separate hype from facts. The CFTC offered a monetary reward for information identifying this fraudulent activity but so far it appears to have little success.
Alexander Geralis, the Chief Product Officer of cXchange, has discussed the pump-and-dump scheme affecting the cryptocurrency market with the BloxLive TV, covering the below topics:
- Will the issues with pump-and-dumps schemes be resolved by maturing markets or is regulation needed to cap them?
- Are investors safer from this scheme when investing in top coins?
- Are social messaging platforms should address this on their end?
- How to spot the pump-and-dump scheme?
- Does the overall slower trading activity help achieve better results for these schemes?
- How does this type of price manipulation compare to other recent findings like wash trading?
- Is it realistic to face out the price manipulation in this kind of market?
- Can exchanges play a role in helping to neutralize the market manipulation or is it out of their power?