A new report claims that secretive Telegram groups are engaging in “Wolf of Wall Street”-style tactics in cryptocurrency markets.
These trading groups artificially inflate the price of small cryptocurrencies with the hope of making a quick profit at the expense of other investors. It’s a classic pump and dump scam – and it occurs in the crypto markets every day.
The report comes from Business Insider, where a journalist claims to have witnessed five pump and dump schemes in just one week. All five pump and dump schemes were orchestrated via Telegram, a popular messaging app.
Pump and dump activity is illegal in traditional, regulated stock markets. However, regulators are struggling to address fraudulent behavior in the cryptocurrency sector, which has exploded in size to $200 billion in 2017.
Meanwhile, industry insiders claim that pump and dump activities are rampant across the industry, describing it as “a real problem”.
How Do Telegram-based Pump and Dump Schemes Work?
Trading groups organize via Telegram. These groups aren’t a collection of five or six people. Instead, one group listed in the Business Insider report had 14,254 members.
In screenshots posted from these groups, members brag about the size of their pump and dump gains. One trader writes “We chose powerfull [sic] coin that will fly to the moon even without our pump.”
That trader – the admin of the 14,000+ strong group – identified UBQ as one cryptocurrency that was to be targeted with a pump. 15 minutes later, that admin sent a message detailing the results of the pump, bragging that there was 85 BTC of trading volume – of which 45 BTC was attracted during the group’s pump.
UBQ wasn’t the only coin targeted by the trading group. Business Insider identified a total of five pump and dump schemes from Telegram trading groups, including schemes for cryptocurrencies like VCash, Chill Coin, Magi Coin, and Indorse.
All of the pump activity took place on one of two exchanges: Las Vegas-based Bittrex or the Russian exchange Yobit.
That pump and dump group is called PumpKing Community. That community’s Telegram group features links to pumping tutorials, as well as links to Facebook groups and other websites where traders can advertise their pump to unsuspecting investors.
Orchestrating the Pump
“Pump and dump” schemes involve more than just a message in a Telegram group chat. It’s a carefully orchestrated event taking place across the internet. Basically, thousands of people suddenly purchase a currency at one low rate, then spam the internet with recommendations to buy more.
The pumpers use social media, Reddit, online forums, and other outlets to advertise the pump. The pumpers argue that the price spike is evidence of a sustained rally, and that smart traders should get in now before the coin goes “to the moon”.
The pumpers then offload their coins to new buyers who came into the market at a higher price. In most cases, this coordinated “dump” drops the price of the coin back to its original level. The end result is a group of traders have successfully created value out of nothing but artificial demand.
Why is Telegram the Best Choice for Pump and Dump Schemes?
The admin of the PumpKing Community group on Telegram goes by the pseudonym Ton Montana – an apparent reference to Scarface.
Why are these people organizing via Telegram? Telegram is one of the most heavily-encrypted messaging platforms available today. Its users can also use aliases. Both of these features make it difficult to track who’s involved in these scams.
These Telegram groups often schedule things like “VIP Signals”, where users can pay a premium to participate in a pump (or begin the dump) before the rest of the group hears about it, giving early traders an extra bonus return on their investment.
“This Sort of Activity is Rife”
One industry analyst cited in the Business Insider report describes how this activity is common across the industry:
“It’s clear from even casual monitoring of the exchanges that this sort of activity is rife, particularly with altcoins with smaller circulation,” explains Ben Yates, a senior associate at the law firm RPC, which is closely overseeing the crypto industry.
In government-regulated stock markets – like London and New York’s stock exchanges – pump and dump schemes are illegal. In the future, it seems inevitable that cryptocurrency markets will be regulated in the same way. For now, however, it’s like the Wild West out there.