Crypto Pump & Dump Groups Guide – Part 1

Jump to page contents

Crypto Pump & Dump Groups Guide – Part 1

The cryptocurrency market is still developing, it remains unregulated and consequently, has attracted questionable practices. There has been evidence of all kinds of activity which would be considered highly unethical and in certain cases, illegal in comparison to traditional markets.

There has been evidence of exchanges pumping up their volume through wash trading, market manipulation by large traders and pump and dump schemes being run by smaller retail traders. The following guide will give an overview of what exactly a Pump & Dump is as well as why it is prevalent in cryptocurrencies and not other markets. Moreover it will discuss the main groups organising pump and dumps through the popular messaging platform Telegram.

What is a Pump & Dump Scheme?

A Pump & Dump Scheme is an activity organized by a group of traders whereby the price is artificially inflated by the group. Once the price has been inflated, the next step is to entice other traders outside of the group to buy. Those in the group exit their positions often resulting in the price crashing and those who entered late being left on the losing side of the position.

Nevertheless, this practice can extend to more than than simply driving the price up. Members of Pump & Dump Groups can also coordinate with each other to spread misinformation and hype regarding whatever instrument they are pumping. It’s good to highlight the fact that this practice is illegal in the well-regulated securities market.

Famous Pump & Dumps

Hit film The Wolf of Wall Street, where Leonardo DiCaprio played Jordan Belfort depicted an actual Pump & Dump Scheme which took place in the early ’90s. Belfort’s organization, Stratton Oakmont, hired ambitious brokers to sell large amounts of stocks in low-quality companies to clients. Belfort and other partners in the scheme held large amounts of these companies and offloaded their positions after significant spikes in price.

Pump & Dumps in Cryptocurrencies

The lack of regulatory oversight and early stage of development in the cryptocurrency markets have made it ripe grounds for questionable trading practices such as Pump & Dump Groups. The lower market cap of many traded altcoins has made it possible for groups of retail traders to execute these practices.

The high market cap and liquidity in the equity markets has made it practically impossible for groups of retail traders to orchestrate Pump & Dump Schemes. Even if it was attempted, the probability is that it would only slightly move the price and would run the risk of a large institutional investor moving the market in the opposite direction.

Do Pump & Dumps Actually Work in Cryptocurrencies?

Recent research shows that Pump & Dump groups can be quite successful in the cryptocurrency markets and are most effective in lower capitalization cryptocurrencies. Although Pump & Dumps still take place in larger cryptocurrencies and even Bitcoin as the research reports, the most effective gauge of the success of a Pump & Dump is the market cap ranking of the cryptocurrency. The proliferation of cryptocurrencies over the past few years is likely to have further incentivised this practice.

What are the Key Risks to Participating in Pump & Dumps?

There are a number of factors which can result in a failed pump. Groups analyse trading order books prior to pumping a cryptocurrency to identify cryptocurrencies which may have large sell orders that would serve to stop the cryptocurrency from appreciating.

This can be a difficult thing to analyse as some large traders can have hidden orders or can be notified when a cryptocurrency is appreciating and subsequently put in a large sell order. It is not uncommon for an organized pump to meet a sell wall that it simply cannot overcome and a lot of traders participating in the pump incur losses as a result.

Bearish market conditions can also result in a failed Pump & Dump. Even with large buying pressure coming from the group, the organized pump may not be able to increase given the selling pressure of the market.

Even if a pump does well, not all the participants involved need to have profited. Some of those who are later entering may have bought already after the cryptocurrency has significantly appreciated. This leads to an increased risk of the price swinging in the opposite direction and the trader losing money. It can also be difficult for those involved to assess the right time to exit the trade. Exiting too early means that the participant may lose out on a potentially large appreciation. Exiting too late means that the price may start dumping and the participants may lose money.

Pump and Dump Groups on Telegram

Several Telegram groups exist which facilitate Pump & Dumps in the cryptocurrency market. Telegram is a cloud-based messaging platform where groups of up to 100,000 can be built. It has over 200 million active users.

The Pump & Dump Groups organized here are essentially conducting a practice which seeks to profit by misleading other market participants through coordinating the release of misinformation and driving the price up artificially.

It is important to be aware of the largest operators of these groups, given their impact on the market. Being more knowledgeable and vigilant helps prevent being the victim of some of these schemes if the trader is aware of how they are operated and orchestrated.

Be sure to check out the second part of this guide, where other features of Pump & Dump Groups will be explored and discussed in further detail.

Recently Similar Guides

Latest Guides

Bitcoin,Blockchain,Cryptocurrency,Decentralised

What Is A Bitcoin Fork? Full Guide

Bitcoin forks are an important aspect of open sourced and decentralized technology. Bitcoin forks allow users to create new blockchain platforms based off of Bitcoin’s open sourced code, but what is the point? In this guide we explain everything about Bitcoin forks, what they are used for, and why they are important for the cryptocurrency […]

9 September, 2020
Blockchain,Cryptocurrency,Ethereum

What is VeChain?

So, What Exactly is VeChain? VeChain is a platform created using Blockchain technology and designed to improve existing supply chain management and oversight. The platform takes advantage of several elements of Distributed Ledger Technology (DLT) to facilitate the process of origin confirmation and quality mark of a particular product. VeChain is made up of two […]

26 August, 2020
Bitcoin,Crypto Mining,Cryptocurrency,Mining

Hash Rate Vs. Hash Power

Hash rate and hash power are two very important aspects of securing and verifying the transactions on a blockchain. What is the difference between the two? Why are they necessary for proof-of-work verified blockchains? We discuss this and more below. So, What is Hash Rate? Hash rate and hash power both relate to how a […]

20 August, 2020
Bitcoin,Casino,Gambling

Betting in Bitcoin

Since their inception at the turn of the millennium, online casinos have been at the forefront of technology adoption. From mobile gaming to automated verification and the use of virtual reality, the industry is constantly evolving. This is normally great news for players, as most innovation is a step towards a better, safer, fairer, and […]

20 August, 2020
Bitcoin,Casino,Cryptocurrency,Gambling

The Next Big Cryptocurrency

Will There Ever Be A New Bitcoin? Bitcoin is the first iteration of blockchain technology and cryptocurrency to ever be created, and it is also the largest cryptocurrency by market capitalization, worth over 170 billion dollars. After more than 10 years from Bitcoin’s date of inception, there is now well over 5500 unique cryptocurrencies, hundreds […]

10 August, 2020
Cryptocurrency,Trading

What is Futures Trading?

If you ever hear about fictional characters wheel and deal over futures, you must be familiar with the phrases “invest in pork bellies” or “corner the market”. The movie “Trading Places” by Eddy Murphy/Dan Akroyd climaxed over the price of a product most people forgot: frozen orange juice. How can anyone become wealthy on pre-bacon […]

5 August, 2020
Gambling,Gaming,Regulation

The Importance of Responsible Gaming

What is Responsible Gambling? Responsible gambling is one of the most important aspects of playing online as it significantly affects the way players gamble. We’ll elaborate further on this, but first things first, let’s go through what responsible gaming actually is. Not to sound too obvious, but responsible gaming is the act of gaming responsibly. […]

27 July, 2020
Bitcoin,Blockchain,Cryptocurrency,Digital Currency

What is Fiat Currency?

Fiat Currency Definition The definition of a fiat currency is any currency that is established and regulated by a government that inherently has no intrinsic value. While stores of value such as gold are considered money because of their intrinsic value, fiat currency has its buying power dictated to its users by a regulating governing authority. Fiat […]

21 July, 2020