The Rise of Pump and Dump Schemes in Cryptocurrency
In a digital world where fortunes can be made or lost at the click of a button, the year 2022 saw approximately $4.6 billion funneled into crypto tokens suspected of being part of pump and dump schemes, according to a February 16 report from blockchain analytics firm, Chainalysis. With over 9,900 tokens on the BNB Smart Chain and Ethereum blockchains fitting this dubious profile, the need for awareness has never been greater.
What Exactly Is a Pump and Dump Scheme?
Below the glimmering surface of cryptocurrency lies the darker alley of pump and dump schemes. In layman’s terms, these schemes involve creators hyping up a token to entice investments while quietly unloading their shares at elevated prices. But what makes this scheme especially tantalizing (and treacherous) is the utilization of misleading statements, creating a sense of urgency or FOMO (Fear of Missing Out) that can lead even seasoned investors into the fiery pits of regret.
How Chainalysis Identifies Suspected Fraudulent Tokens
Chainalysis has a rigorous system for spotting these fraudulent tokens. A token is considered worthy of scrutiny if it demonstrates at least 10 swaps and four consecutive days of trading on decentralized exchanges (DEXs) within its first week of launch. Remarkably, of the 1.1 million new tokens released last year, only roughly 40,500 managed to tick these boxes. Delving deeper, if a token’s price plummeted by 90% or more in that first week, it earned a prime spot in the pump and dump hall of shame.
- Over 40,500 tokens analyzed
- 24% classified as likely pump and dump schemes
- 265 tokens launched by one prolific perpetrator
The Human Element Behind the Scams
What’s more astonishing is the limited number of individuals or groups behind these schemes. Chainalysis estimates around 445 creators orchestrated the suspected pump-and-dump activities, accumulating approximately $30 million in profits. The beauty (or horror) of anonymity in the world of crypto allows these serial offenders to launch multiple tokens without breaking a sweat.
Can Legitimate Token Teams Be Victimized?
Often, consumers are left wondering: can legitimate teams fall victim to the market’s harsh realities? Chainalysis suggests this is indeed possible. Like a fine line between genius and insanity, sometimes a token may start with noble intentions but succumb to market forces beyond its control. It’s not always malicious intent at play—though the sheer volume of scams is staggering, the cryptocurrency landscape is undoubtedly volatile.
The Silver Lining: A Decrease in Crypto Scam Revenues
In a somewhat heartening note, Chainalysis remarked that revenues from crypto scams halved in 2022. This decline is primarily attributed to overall depressed crypto prices, as scam artists found it harder to capitalize on the gullible when the market is in a slump. So, there’s a glimmer of hope amidst the chaos. Let’s just keep our fingers crossed that it stays that way!
