- Traders “pump and dump” small cryptocurrencies to artificially inflate the price in the hope of making a quick profit at the expense of other investors.
- Business Insider observed five apparent “pump and dumps” of coins in just a week, coordinated using messaging app Telegram. See how they work here.
- The activity would be illegal in most markets but regulators have yet to get to grips with cryptocurrency sector, which has exploded in size to $200 billion in 2017.
- Those who monitor the secondary market say “this sort of activity is rife” and “a real problem.”
LONDON — Cryptocurrency exchanges are rife with “pump and dump” scams that would be illegal in most markets and leave unsuspecting investors at risk of large losses, a Business Insider investigation has found.
Crypto traders are using the secure messaging app Telegram to orchestrate the scams. Their strategy is to suddenly inflate the price of a cryptocurrency by coordinating a few buyers to act at specific times.
Then, after the price rises, they attract other, unwitting investors to buy into the price momentum. The “pumpers” quickly sell the coin to make a profit. The coins often crash just minutes after the initial surge, leaving the second wave of investors with losses.
The same scam was most famously carried out in the stock market by the “Wolf of Wall Street” Jordan Belfort, the convicted securities fraudster whose exploits were turned into a film starring Leonardo DiCaprio.
Business Insider observed “pump and dumps” for the cryptocurrencies UBQ, VCash, Chill Coin, Magi Coin, and Indorse over the last two weeks alone. All the scams took place on either Las Vegas-based exchange Bittrex or Russian exchange Yobit.
Ben Yates, a senior associate at law firm RPC who has looked closely at the space, told Read More Here