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What are crypto pump-and-dump groups? Are they legal?

Pump and dump operations, which fraudulently manipulate prices by spreading false information, have existed in economic contexts since at least the 18th century. For example, fraudsters with shares in the South Sea Company began making false claims about the business and its income in the early 18th century.

The plan was to artificially inflate the share price before selling it to uninformed consumers, tricked into thinking they were investing in a promising asset. contemporary fraudsters are following suit with a pump-and-dump strategy known as the South Seas bubble.

Reading: Bitcoin pump group

However, with the advent of blockchain technology and the rise of cryptocurrency trading, the problem has become broader and more serious. Because government regulation has been delayed, cryptocurrencies are especially susceptible to this type of market manipulation.

In this article, you will learn what crypto pump and dump schemes are, how they work, and how to detect them.

what are crypto pump and dump groups?

A pump-and-dump scam is a type of fraud in which perpetrators accumulate a commodity over time, artificially inflate its price by spreading false information (pumping), and then sell what they have accumulated to unsuspecting buyers at a higher price. (dumping). once perpetrators have fraudulently inflated the price, it typically declines, leaving buyers who made their decision based on misleading information at a loss.

Self-organized teams of individuals conduct online pump-and-dump operations. These pump and dump groups host the scams in plain sight on the discord (voice over internet protocol and text chat service) or telegram (instant messaging application) server, allowing anyone to join the groups without prior consent.

In pump-and-dumps groups, there is a hierarchy of members and leaders (or administrators) who manage the group. higher ranking members receive the notification that starts the bomb by revealing the target coin slightly earlier than lower ranking users. in this way, the member has a greater chance to buy at a lower cost and benefit more from the pump and dump scheme.

Most groups are structured through a membership system, where members can move up the hierarchy by recruiting new members. the rating increases in proportion to the number of new members added to the group. Instead, some organizations have a simplified hierarchical structure with only two levels: VIPs and regular members. To join these organizations, a user must pay a fee, usually in bitcoin (btc), between 0.01 and 0.1 btc.

what are cryptographic pump and dump tokens?

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A crypto bomb signal is a message intended to entice people to buy a cryptocurrency so that they can benefit from price manipulation caused by the sudden increase in demand. after the pumping causes a significant increase in prices, which are called crypto dump signals, members start selling at a nice profit. There are two types of groups on telegram and discord that post signals in unknown cryptocurrencies to artificially inflate the value of the underlying coins, as explained below:

What are crypto pump-and-dump groups? Are they legal?

The messages in pump-and-dump crypto groups on Telegram and Discord are usually broadcast in the following ways:

  • Information and Procedures: These two sections resemble an electronic bulletin board with posted messages. each segment is made up of several rooms, each of which has only one or a small number of messages. group rules, news about the group, information about the membership system and frequently asked questions are typically found in the rooms of the information section. likewise, you can find crypto industry guides or best practices for engaging in a pump and dump operation in the how-to section rooms.
  • signal: only admins can post in this area, which is its central axis. the pump signal and trading signal rooms are often located in this area. admins talk about the upcoming pump and dump operation in the first room and exchange trading tips in the second.
  • invitation: server bots live in the rooms in this section. here, users can ask the bots for invite links to attract new members or find out how many people joined the server using their invite links.
  • discussion: group members can chat freely in rooms dedicated to several topics in this section.

how do cryptographic pumps and dumps work?

The numerous pumping and unloading groups on the internet have varying levels of activity. the most active perform about one pump and dump cycle per day. the less active groups will only be able to carry out one operation per week. other organizations carry out activities when they consider that market conditions are favourable. so can you make money by pumping and dumping crypto?

There may be a chance to profit because a pump and dump technique involves artificially increasing the value of a crypto asset just before a sudden and planned crash. however, you will be stuck with the unknown coins for a long time if you don’t sell them fast enough. keep in mind that nothing is inevitable in the volatile cryptocurrency market; therefore, as a precautionary practice, understand basic crypto metrics to avoid falling for projects that seem “too good to be true”.

Related: The Most Common Cryptometrics: A Beginner’s Guide

To understand cryptocurrency pump and dump scams, read the steps crypto scammers follow to trick channel members:

disseminate basic information

administrators communicate the exchange to be used, the precise start time of the operation and whether the scheme will be ffa or classified. if it’s free for everyone, those with vip rank receive the message at the same time or a few days or hours before the operation.

underlying currency target announcement

as the start time of the operation approaches, the announcement is repeated more frequently.

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Party members are informed of the target coin when the bomb starts. your position within the hierarchy will determine when you will be informed of the start time.

The name of the cryptocurrency is usually written in a graphic that was deliberately obscured so that only humans can quickly decipher it. obfuscation aims to prevent bots from parsing the message using optical character recognition (ocr) techniques and launching market trades faster than people.

ocr is the method used to transform the text of an image into a machine-readable text format. your computer will save the scan as an image file, for example if you scan a form or receipt. the words in the image file cannot be edited, searched, or counted with a text editor.

What are crypto pump-and-dump groups? Are they legal?

Spreading news to draw outside investors

Finally, the market manipulation in crypto starts after the pump is started and the admins post a tweet or share the news, asking everyone in the group to spread the word that the price of the cryptocurrency is rising. In order to incite the so-called fomo (fear of missing out) of a fantastic investment opportunity and attract external investors, users spread their message through twitter, forums and special chat rooms.

how to detect a crypto pump and dump scheme?

Because information about unknown coins is spread on discord and telegram channels, you may want to ask if crypto pump and dump groups are legal. pump-and-dumps are illegal in the stock market, but since most cryptocurrencies are not considered securities, cryptocurrency markets often operate in legal limbo. therefore, even though crypto pump and dump scams are morally and legally dubious, they may not violate any laws currently in force. however, regulated cryptocurrency exchanges treat such scams as illegal.

so how do you know if a crypto is a pump and dump? understanding if and how quickly someone can execute a pump and dump strategy is crucial for investor protection. Although there are no sure indicators of crypto pump and dump scams, you should not ignore excessive publicity around a project or its token as these can be red flags. therefore, investors must continually evaluate cryptocurrency projects before making informed investment decisions.

Related: How to identify and avoid a crypto pump and dump scheme?

The rapid and parabolic increase in the price of a cryptocurrency is another sign of a pump and dump scheme. this is especially relevant if the crypto was previously discarded, unrecognized, or forgotten. Also, whenever you hear a well-known person talk about a cryptocurrency, consider their possible motivations. many influencers and celebrities have little knowledge of cryptocurrencies; however, if they are paid to do so, they will simply promote them (even if they are scams).

As a result, one should beware of such tactics before believing in the future of unknown crypto projects. So how can crypto investors avoid pump and dump schemes? Choosing a strategy and sticking to it are crucial components of trading or investing. With this approach, one can ensure that they only invest in crypto assets or projects that they are familiar with.

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