Jiahua Xi and Benjamin Livshits of Imperial College London have used an algorithm to detect signs of an imminent scam.
In findings that could prevent a repeat of the 2017 bitcoin price spike, researchers at Imperial College London claim to have developed a model for a crypto "pump-and-dump" scam, making it possible to proactively detect them.
Jiahua Xi and Benjamin Livshits write in their recently released paper[1], "The Anatomy of a Cryptocurrency Pump-and-Dump Scheme":
"The model exhibits high precision as well as robustness, and can be used to create a simple, yet very effective trading strategy, which we empirically demonstrate can generate a return as high as 80% within a span of only three weeks."
Pump-and-Dump
A pump-and-dump scheme is a type of market manipulation in which an often obscure cryptocurrency is hyped by those who buy low on an announced spree, only to sell it off quickly for a tidy profit.
This usually involves the spreading of rumors by the scam's planner from those "in the know." According to the US Commodities Futures Trading Commission (CFTC), such messages take the form[2] of, for example: "5 minutes till pump, next message will be the coin! Tweet about us and send everyone the link to telegram [sic] for outsiders to see what we are pumping so they can get in on the action too!! lets [sic] take it to the MOON!!!!!"
Typically, because these scams are organized by planners that have amassed large sums of the cryptocurrency beforehand, pump-and-dumps usually primarily benefit the planner who "dumps" his/her coins first. This can all take just a few minutes.
An example of this is Russian crypto exchange YoBit, which tweet[3]ed that it would be buying a "random coin" every few minutes
