Cryptocurrency Trading: Pump and Dump, Its Cases and Preventive Measures

Posted by on January 9, 2019 in News Flash with 0 Comments

Pump and Dump is a ploy used in stock trading and investing by a person or a group of persons to increase the value of an asset and garner profits off its price increase. This action is an illegal operation under the securities law. However, due to the unregulated atmosphere that cryptocurrencies operate in, it has become very popular in cryptocurrency trading.


Most of the time, the rise in the price of targeted cryptocurrencies for pump and dump actions is an offshoot of false marketing. In a time where information circulates in split seconds, these marketers spread misleading statements, i.e. Major partnership news etc. and get unsuspecting traders to buy into the lies, as you know “Buy the Rumour, sell the News”. This action happens on meaningful media platforms such as Telegram, Slack where most cryptocurrency investors hold the discussion, Twitter among others.

When the pump and dump strategists get their word out, they create a little trust by pumping the asset a little bit, and other traders with belief in the rumour coupled with the Fear Of Missing Out (FOMO) buy into the assets.

Depending on the strategy of the people in on the scheme, this operation can go on for an unspecified time before the investors involved would sell off their shares of the overvalued asset at higher prices and leave unsuspecting traders to bear the loss as the asset returns to a normalised value.


Gone are the days when stock trading was done manually. In those days, pump and dumps were hard to organise as communication was limited between traders. However, the internet has availed people access to messaging applications, chat rooms through which meetings are held, and information can be efficiently broadcast to the world.

Due to this challenge, the Commodities Futures Trading Commission has realised that if this issue isn’t well handled, it could ward off potential investors from the space started a sensitisation exercise.


The CFTC (The U.S. Commodity Futures Trading Commission) on Feb 15th, 2018 released their first official statement on PUMPS and DUMPS especially within the cryptocurrency community. The announcement titled “Virtual currency customer protection advisory statement” was released to enlighten the world about the fraudulent activities going on in the space as well as caution the public on being extra careful.

The statement released as well contain proofs of such atrocities being committed with screenshots of different tweets and messages.


Cryptocurrency is an innovation that requires time, space and support from the government to facilitate growth. However, the need for regulation can never be overemphasised to protect consumer interests among all others. Due to the decentralisation structure that cryptocurrencies exist in, it is tough for rules to find expression except cryptocurrency exchanges begin a proper review of their terms of service to include an appropriate KYC.

In cryptocurrency trading, traders aren’t known by certificates or personal details thus making it difficult to catch pump and dump investors. However, regulations can be accomplished when the exchanges are tasked by the government to include KYC documentation for every trader on their platforms such that when pump and dump operations happen, the culprits can be found. Also, this can be done such that government puts asides a bounty reward for whistleblowers who could report such actions.


Bittrex is one of the top cryptocurrency exchange out there with a large trading volume. However, repeated cases of pump and dump are fast affecting its operations. While pump and dump planners make a substantial profit off the scheme, and it has robbed many of their tokens. One of the cryptocurrencies used for occasional pump and dump is SLS (Salus). There are others like TX, TOX before it was delisted etc.

It has been observed that traders coordinated these pumps and dumped on Telegram before it is carried out. However, Bittrex upon observation of the operations in its system and proofs of such plans via screenshot, Bittrex reviewed its Terms of Services to include a penalty for accounts observed to be part of such fraudulent scheme.


The CFTC issued four essential warnings to consumers to guide against falling prey to pump and dump situations:

  • Do not purchase digital coins or tokens because of a single tip, most especially it the advice comes off social media.
  • Do not get involved in pump and dump trades as it is illegal.
  • Shun all ads and websites were pretending to offer quick wealth through investment schemes.
  • Guaranteed trading does not exist. Every trade has its risks involved. If an investment opportunity is presented to you as risk-free, shun it.

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