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

casinoin-promotion etoro-promotion

Latest Guides

AvaTrade,CFD Trading Platform,Trading

AvaTrade Fees Explained In Detail

AvaTrade is a fast-growing trading platform which offers an extensive range of Contracts for Difference (CFDs) in numerous markets. Founded in 2006, it is licenced and regulated across the world through its numerous subsidiaries and partners. For its services, AvaTrade charges fees, and this guide will help you understand what they are and when they […]

2 June, 2020
CFD Trading Platform,IQ Option,Trading

IQ Option Fees Explained in Detail

IQ Option is a leading Contracts for Difference (CFD) trading platform which is specially designed for the small investor. This award-winning platform offers a customisable user interface and a range of convenient services. Moreover, it provides clear and transparent fees, which are competitively priced and valued. General overview of IQ Option Considered to be one […]

29 May, 2020
CFD Trading Platform,Plus500,Trading

Plus500 Fees Explained in Detail

Plus500 is one of the world’s best-known trading platforms for Contracts for Difference (CFDs). These are financial instruments which let you invest in a variety of assets without needing to purchase and store them. As a result, CFDs are more convenient and faster to trade, allowing investors to short sell assets and trade using leverage. […]

26 May, 2020
Cryptocurrency,Forex,Margin Trading,Trading

Sortino Ratio

In the world of mathematics and statistics, when one individual develops a theorem or formula, over time, it is usually revised and/or used to derive other formulae and theories in the industry. In the case of the Sortino Ratio, it is an offshoot of what Professor William F. Sharpe came up with when he introduced […]

21 May, 2020

What is MetaTrader 4?

If you’re going to cross a big river, you need a boat or a bridge. If you are going to trade Forex online, you need specialized trading software. Once installed on your computer, the software becomes a bridge connecting you to the Forex market. MetaTrader4 Defined MetaTrader4 or MT4 is a common trading platform that […]

18 May, 2020
Bitcoin,Blockchain,Crypto Wallets,Cryptocurrency

What is Bitcoin?

So, What Exactly is Bitcoin? Bitcoin breaks down into two distinct components, a blockchain protocol and a cryptocurrency, the first usable examples of both, designed to facilitate transactions in a peer-to-peer, decentralized manner. The cryptocurrency Bitcoin is a portion of code that represents an immutable digital token, similar to a digital gold coin that could be instantly broken down and […]

12 May, 2020
Cryptocurrency,Forex,Margin Trading,Trading

Sharpe Ratio

Over the years, several methods have been devised by statisticians, economists and mathematicians to measure the performance of tradable assets such as equities, commodities, stocks and currencies. One such measure is the Sharpe Ratio that was introduced in 1966 by William F. Sharpe: Professor Emeritus of Finance at Stanford. The ratio has since proven to […]

6 May, 2020
Crypto Wallets,Gambling,Litecoin

How to Get Started with Litecoin Gambling

What is Litecoin Gambling?  Without wanting to state the obvious, Litecoin gambling is pretty much what it says on the tin: gambling with Litecoin. Litecoin is a form of cryptocurrency developed in 2011 by Charlie Lee, a former Google employee (hey, that rhymes!); moreover, it’s a fork of Bitcoin, meaning that it branched out from […]

5 May, 2020