December 20, 2018 12:41 AM
Although pumping low-volume coins is more profitable, coins with higher market caps aren’t immune to the scheme.
On December 18, a team of researchers from Tel Aviv University, the University of Tulsa, and University of New Mexico published findings from a six-month study into pump and dump schemes. The key finding of the paper[1], called "The Economics of Cryptocurrency Pump and Dump Schemes," is that "pumping obscure coins (with low volume) is much more profitable than pumping the dominant coins in the ecosystem."
For the uninitiated, pump and dump schemes are scams in which a group of people coordinate to buy an asset, thereby increasing trading volume and, importantly, price as it attracts other investors. They then dump, or sell, the asset en masse to make a profit.
The study looked at 4,818 such schemes that took place on Discord and/or Telegram from mid-January to early-July 2018. The schemes fell into three categories: "obvious pumps" which made no attempt to hide what they were doing; "target pumps," which were coyer, ostensibly to avoid future legal consequences; and "copied pumps," which copied other schemes' leads. The researchers point out that smaller groups use copied pumps as they build up users.
The differences in approach can be explained, in part, by the lack of regulatory oversight. As the authors of the study point out, "The U.S. SEC actively prosecutes pump and dump cases using publicly traded stocks. Such schemes involving cryptocurrencies are not any different. However, regulators have yet to prosecute pump and dumps involving cryptocurrencies. With the exception of insuring that taxes are paid on cryptocurrency profits, US regulatory policy towards cryptocurrencies and initial coin offerings (ICOs) has been generally been [sic] 'hands-off.'"
Noting that there's been other scholarly work on
