P & D schemes - the artificial amplification of a share price through false and misleading positive statements - emerged long before the creation of digital currencies. But what is striking about digital currency markets is that this kind of manipulation is done openly.
On various social media channels, such as Telegram, BitcoinTalk and Reddit, people meet with each other and buy alternative currencies at a certain price and sell them simultaneously when the price peaks. They usually publish false or misleading information to persuade unsuspecting investors to buy during the period leading up to the incident.
But you have to pay tribute to them for one reason: they do not fill their activities in terms of palliative development.
Just look at the names of the top five "P & D" chat groups on "Telegram", as "Business Insider" says:
1- "PumpKing Community" (14,317 members)
2- "Crypto4Pumps" (consists of 7,602 members)
"AltTheWay" (consists of 5,582 members)
"Pump.im" (consists of 148 members)
"OCPump" (consists of 1,281 members)
While this twisted type of transparency may be refreshing when compared to the secret manipulations of Libor by big-market traders a decade ago, the proliferation of these groups underscores the risks to investors in digital currencies.
"This has a negative impact on the public market and creates fear, uncertainty and uncertainty (FUD) simply in the global digital currency community," said Oleg Siddak, chief executive of Blackmoon Financial Group, a platform for the digital currency lending market. He added:
"This type of manipulation unfortunately affects the vast majority of new investors in digital currencies, and if we want the industry to flourish, we need to work together to prevent and close these channels and groups"
Possible solutions
The Commodity Futures Trading Commission (CFTC), the US derivatives regulator, announced in February that it would pay a reward to those who submit information leading to legal enforcement.
Another possible solution lies in the self-organizing organization (SRO) such as those proposed by the founders of Gemini, Cameron and Tyler Winklifos. The CFTC Commissioner, Brian Quentins, supports this concept. But it is not clear if any such organization would be able to stop the spread of such groups.
Until regulators come out with rules to limit PUMP & DUMP tricks, investors will need to be more careful not to fall victim to these scams.
The psychological factor or "psychology" is the key to these frauds. So be careful in light of the fact that the fraudsters are usually masters of persuasion, while they will design their operations to take advantage of the features and psychological dimensions of their goals.
And remember well, if it looks incredibly good, it's unbelievable.
Keep your guard in full
To illustrate the matter, look at the photographs taken by the P & D group that it is working on, and which it has again acquired "Business Insider". Note that the language that is trying to exploit fear "FOMO" (fear of losing or losing something).
According to these data, additional caution is being given to the initial digital currency of the ICOs, in light of the fact that some estimated that one in 10 "ICOs" may have used this scheme at least once.
According to an article published by Sergei Khorolski in January of this year, some ICOs recognize that their project is close to failure and thus organize the P & D process. The strategy is very simple: they start to launch good news on their followers, using all kinds of social networks.
Digital currencies are generally known to be susceptible to manipulation and the reason is that they trade slightly when compared to mainstream financial assets. Tres Schmeltz, a partner at the Barnes & Thronburg LLP offices in Chicago and Washington, DC, said:
"One investor can push prices on a single trading platform by taking a big position in one way or another, or simply by putting down a big question or asking that alone that will move the market"
What's more, "For digital currencies traded in multiple markets, a trader can move the market globally by moving the price on a single trading platform."
For this reason, investors should beware of the next pricing as shown in the less established trading platforms, Schmeltz added. "Whether you like it or not, digital currencies have emerged to stay. As the market evolves, crooks will emerge following the implementation of the regulations.