MIT: Crypto Pump-and-Dumps See $7 Million in Volume Every Day
December 06 2018 - 5:07AM
ADVFN Crypto NewsWire
According to the Massachusetts Institute of Technology
(MIT) Technology Review, two researchers at the prestigious
Imperial College London have utilized artificial intelligence (AI) and machine learning to
analyze hundreds of crypto pump-and-dump schemes to figure out a
way to spot them before they occur.
Since the 2017 bull market of cryptocurrencies, pump-and-dump
schemes in the digital asset exchange market have become a major
issue for both investors and regulators.
Even on major trading platforms, the market has seen assets pump
within a period of hours and dump within seconds after the
build-up, mostly organized by private Telegram groups, leading retail investors to lose out
massively.
$7 Million Per Day
In their study, Jiahua Xu and Benjamin Livshits at Imperial
College London revealed that on average, at least two pump-and-dump
schemes are materialized in the crypto market on a daily basis,
producing $7 million in daily trading volume.
The researchers said that hundreds of pump-and-dump schemes
happen every quarter and the only way to not be affected by them is
to completely avoid assets that show any sign of an artificial
price build-up.
For instance, one of the 236 pump-and-dump schemes Xu and
Livshits studied between July 21 and November 18 is a little-known
coin called BVB. The researchers said that once a Telegram group
announced the initiation of a pump on the asset, the price of BVB
almost immediately skyrocketed to its peak.
To go from a low price range to an all-time high, it took BVB 18
seconds.
The researchers wrote:
“We notice that the first buy order was placed and completed
within 1 second after the first coin announcement. After a mere 18
seconds of a manic buying wave, the coin price already skyrocketed
to its peak. Three and half minutes after the start of the
pump-and-dump, the coin price had dropped below its open
price.”
The CFTC has warned consumers that crypto pump-and-dump schemes are
illegal.
With low market cap cryptocurrencies, especially those with less
than $1 million in daily volume, it is very cheap for manipulators
to artificially create an upward price movement in an instant. The
sudden increase in price then fuels a follow-up rally, influencing
many other investors in the market to join in out of fear of
missing out (FOMO).
The researchers also stated that some insiders accumulated
crypto assets even before the pump is initiated to stay ahead of
the pack and squeeze out a higher profit margin over fellow
“pumpers.”
“The study reveals that pump-and-dump organizers can easily use
their insider information to take extra gain at the sacrifice of
fellow pumpers,” Xu said.
Simple Solution
Most of the information Xu and Livshits gathered was discovered
by a machine-learning algorithm that was trained using historical
pump-and-dump schemes to instantaneously detect potential pumps
before they even begin.
But, to the majority of traders that do not have a
machine-learning algorithm readily available, the researchers said
that a simple way to find out if an asset is going through a
pump-and-dump cycle is to see if a low volume and low market cap
cryptocurrency sees unexpected trades in an unexpected period.
Although the Commodities and Futures Trading Commission (CFTC)
has released a stern warning to investor groups
in the crypto market against running pump-and-dump schemes, strict
regulations have not been practical and effective in preventing
them.
Source:
CCN
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