Pump-and-Dump Groups Become 'Widespread' as Market Remains Largely Unregulated

The paper - conducted by seven academics from Tel Aviv University, the University of Tulsa and the University of Mexico - concluded that "Regulators should be very concerned that price manipulation via pump and dump schemes is so widespread.".

"These platforms are the main outlets for pump and dump schemes," the paper argues.

Specifically, after collecting "As many pump signals as possible from all channels in these platforms," the researchers located 1,051 and 3,767 pump-and-dumps schemes on Discord and Telegram respectively, which were operating for almost six months, from mid-January 2018 to early July 2018.There were three different types of pump-and-dump channels, the paper notes: "Obvious pumps," "Target pumps" and "Copied pumps."

The first category openly used the words "Pump" and "Dump," and hence was "The most straightforward to identify." Those channels reportedly had only a few pump announcements, which initially would start between 24 to 48 hours before the pump, the researchers argue.

Those chat rooms normally avoided the words "Pump" and "Dump," as their members "Were not sure if pump and dump was legal." They reportedly posted the name of the asset and its current price without any previous announcement, and "Usually tried to announce the exchange" as well.

Finally, there were copied pumps - the channels that simply referenced the pump signals from other sources.

After identifying these schemes, the study measured their results, defined to be the percentage increase in the price following a pump.

The researchers established that pumps using "Obscure coins" with low market capitalization were much more profitable than pumping the dominant coins: "The median price increase was 3.5% for pumps on Discord using the top 75 coins; it was 23% on Discord for coins ranked over 500.".

"The proliferation of cryptocurrencies and changes in technology have made it relatively easy(and virtually costless) for individuals to coordinate and conduct pump and dump schemes," the academics argue.

"The study reveals that pump and dump organizers can easily use their insider information to take extra gain at the sacrifice of fellow pumpers."