Scammers have been successfully manipulating the price of digital assets, including bitcoin, so they can dump their holdings onto unsuspecting traders at a higher price, according to a new academic paper mapping out the extent of market abuse in cryptocurrencies.
Researchers identified 4,818 so-called pump-and-dump attempts between January and July, using data scraped from Telegram and Discord, two encrypted messaging apps popular with the cryptocurrency community.
The scale of the fraud is “widespread and often quite profitable,” and should alarm regulators, according to the draft published in SSRN, a repository of academic research.
“The proliferation of cryptocurrencies and changes in technology have made it easier to conduct pump and dump schemes,” academics from the University of Tulsa, University of New Mexico and Tel Aviv University wrote. “While the fundamentals of the ruse have not changed in the last century, the recent explosion of nearly 2,000 cryptocurrencies in a largely unregulated environment has greatly expanded the scope for abuse.”
Many of the groups attempting to manipulate cryptomarkets do not hide their goals, the paper said, attributing this to a regulatory vacuum.
The study gives further ammunition to calls for tighter regulation of cryptocurrencies. The US Securities and Exchange Commission has cited concerns about manipulation as a worry that must be addressed before it approves a bitcoin exchange-traded fund.
The US Department of Justice in May opened a probe into whether traders are manipulating the price of bitcoin and other cryptocurrencies, ratcheting up scrutiny of the space.
Pumping obscure coins with low volume is “much more profitable than pumping the dominant coins in the ecosystem,” the researchers found.
However, bitcoin was also targeted in 82 manipulation efforts, the study showed.
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