The world financial structure is gradually going ahead toward cryptocurrencies. The crypto market has become one of the greatest concerns nowadays. Several countries’ economies are situated in the crypto-world. It is one of the best stages to make a profit through buying and selling. This is a virtual stock market. Despite the crypto market having several potential to make an advanced future, the next-level technology became the reason for fraud, hacks, and money laundering in this market. Nowadays the term, ‘pump-and-dump’ has become quite famous in the crypto world. Though the term is new, the method is old since the 1700s.
What Is Pump-And-Dump? What Was Its Historical Context?
Pump-and-dump is a fraudulent method in the crypto market through disseminating false information to users. This fraud takes place through sharing wrong information among the users aiming to increase the price artificially. When the price increases the groups sell their accumulated assets and later the price falls again. The investors get cheated. They are bankrupt through this false dissemination.
Since the eighteenth century, this fraudulent technique was used in the economic context. Multiple companies spread misinformation in several ways and used it to raise the price of their shares high. The method of increasing prices through wrong information is called pumping. That means pumping the price up. After getting the fake information users used started buying the commodities or the company sold it out. This condition is called dumping. Contemporary con artists of South Sea Company used to disseminate information. At that time this fraud was named South Sea Bubble.
Pump-And-Dump In The Crypto Market :
At this present time, the same thing as the South Sea Company is taking place in the crypto market. The whole process is organized by multiple ‘pump-and-dump groups. The perpetrators accumulate the assets when the price is low in the market. A time span is scheduled to save the assets. After getting their stock of assets, the groups start to make a strategy to get the pump-and-dump operation to succeed. The groups spread misleading information to the targeted users. The information leads the users to buy the assets. Cryptocurrencies are usually not that popular in the market. The names of the tokens are quite different and unknown. After getting the information, the demand increases for the assets. The price becomes at the top. When the situation to sell assets gets favorable, the groups start to sell the assets. After selling to the users, they leave them with the assets. Later, the price falls. The users or investors intend to buy the commodities and sell them at a higher price. But ultimately they get fraud.
The scammers use the common sights to organize the pump-and-dump groups. They use platforms like Discord Server, Telegram, etc. Discord is a voice-over-internet protocol and text chat service and Telegram is a popular instant messaging service. Using these platforms, the perpetrators make groups. The users can easily enter the groups without taking special permission from any authority.
The group admin controls the whole process. The group members are divided into high-ranked and less-ranked. High-ranked members get notifications regarding accumulating assets at a low price. Whereas the low-ranked members get the notifications a little bit delayed. The high-ranked members have more chances to buy the assets than the low-ranked. After accumulating the assets, group administrators convey the ‘to-do’ list to the members. How the misleading information will be disseminated among the unaware users, at what point the demands should be free to rise, and all the pre-planning made in those groups? After proper homework, the pump-and-dump fraud gets started.