PSA for people who are new to crypto: Be aware of Pump & Dump groups and how they operate.

What is a Pump & Dump (PnD) Group?

Pump & dump groups are made up of people seeking profits on crypto market by deceiving others. The deception happens on a number of levels. They deceive their own group members, and people who are new to crypto markets.

What is a PnD?

It's a modified version of a White Van Speaker Scam, where a con artist makes a buyer believe they are getting a good price on an item that is actually worth a lot less. They do this by having "plants" in the crowd who assist the con-artist in selling the lie ("yes... I'll buy it too... such a good deal... I'll take three!!!"). They use social engineering to trick the person into buying the useless item, and then they take off with the money.

The term Pump and Dump comes from the stock markets, but I prefer the White Van analogy as it makes the deception clearer.

How PnD groups work (very high-level explanation):

The lead up

• Group Insiders organise in private slack/telegram channels.
• Insiders attract fellow PnD'ers (the group Outsiders) to a group on slack/telegram where they promise 20-200% gains if you take part in their scheme.
• Insiders decide on a strategy - choosing an altcoin and exchange to use for the Pump'n'Dump. e.g. Coin: XXYY, Pairing: BTC/XXYY, Exchange: Market123.
• Insiders buy that coin up to a low price in advance of PnP. e.g. 1,000,000 bringing price of XXYY up to BTC 0.00000500
• Close to the PnD, the Outsiders are informed to get their capital ready for that coin pairing on a certain exchange (usually one of the big ones). e.g. "Get your BTC ready on Market123 for Saturday 1pm"

The Pump

• At 1pm on Saturday, the Insiders inform the Outsiders of the strategy. e.g. Buy XXYY up to 0.00001000, then we will sell when it gets to 0.00001600
• Outsiders start to buy XXYY and the price starts to increase.
• At the same time, they flood twitter and reddit with fake news about XXYY and the reason it's increasing. e.g. "Big announcement with Microsoft and XXYY due this week - wall street is buying up the coins with bonuses".
• People who are new to crypto sometimes interpret these signals as a reason to buy.

The Dump

• When the price reaches a certain point (0.00001200), the PnD Insiders sell their XXYY onto the Outsiders who will buy up to .0001600 and the new people who are buying rumours in a hot market.
• At the end of the PnD, the Insiders have increased their BTC position by up to 100+%, some Outsiders make 10-20%, most buy too late and the newbs overpay for their first investment
• In the days after the PnD, the price drops back down towards 0.00000500 as people realise that the news wasn't true and that they bought the hype.

Conclusion

IMO, PnD groups are unethical. They operate from a morally ambiguous standpoint of "if people are stupid enough to fall for this stuff, they deserve to lose". I don't accept that as a justification. It's only a matter of time (alas probably years) before authorities start cracking down on these groups.

In the meantime, all we can do is share info with new people so they don't fall victim.

Due to the huge influx of interest in crypto right now, it's become very lucrative to organise a group to deceive people. Be aware of how they operate.

Why do I feel strongly about this? Remember folks... we want people to learn to trust crypto. We need to work as a community to keep it safe and welcoming for new people.

TLDR: Scamming newbs is not cool. Pump & Dump groups are scammers who destroy long-term crypto value for their own short-term gains. The best way to stop them is through awareness. Be aware of how they operate and educate others.

krypt0maniac

[–]softnmushy 20 points 4 hours ago* 

I'll expand on this a little:

The pump and dump is a very old, and illegal, tactic in the traditional stock market. Especially "penny stocks". Watch the Wolf of Wallstreet if you're interested. (Spoiler: They go to jail after robbing thousands of people.)

You should be less worried about the small scale pump and dumps that people are pointing to in the comments here.

You should be very worried about the likelihood of large institutional players engaging in long-term pump and dump schemes involving crypto. They have the resources and money to do it. And since crypto is not regulated, there is no reason for them not to do it.

The Wolf of Wallstreet was relatively small time. Imagine a big-time player who devoted resources to a pump and dump scheme - without fear of any consequences.

Edit: TLDR: There will probably be a massive crash in the crypto market once a large scale pump and dumper has finished its "Dump". And there is no way to predict when that will happen.

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[–]Thefriendlyfaceplant 11 points 3 hours ago* 

The pump and dump is a very old, and illegal, tactic in the traditional stock market. Especially "penny stocks". Watch the Wolf of Wallstreet if you're interested. (Spoiler: They go to jail after robbing thousands of people.)

They went to jail for IPO fraud, not pump and dumping. They did that too and Belmon narrates it as such, but the actual crime was them working both ends of that shoe brand IPO. IE selling only a tiny amount of shares and then dumping all their self-created shares when it goes public.
The problem with the movie is that Leonardo Dicaprio stops halfway through the explanation right before the actual clue.
This scheme is also employed in crypto with some ICO's. Bitbay is an example. Bitbay held their ICO on Bter and together with the Bter exchange they dumped their own coins after they sold a fraction of the total supply on the ICO while making it visually appear as if they were selling the total supply.
Bitbay is still continuing their development, but without the crooks that wiggled their way into the launch.