New Techniques Deployed To End Bitcoin Pump & Dump

New Techniques Deployed To End Bitcoin Pump & Dump

With the markets sitting in a very volatile state, the risk of a large pump and dump is at an all time high. Simply put, falling Bitcoin prices means that investors are currently very vulnerable. Realistically speaking, since a large majority of the Bitcoin market is owned by a minority of wallets, investors can get together to buy in bulk and then sell in bulk in order to pump and dump. The benefits of this are simple - they control the majority of the market so can buy at the best price, and can agree a time to sell, at the best price.

Does that make sense?

Here’s a more conclusive description of a pump and dump according to Investopedia:

“The scheme can be perpetrated by anyone with access to an online trading account and the ability to convince other investors to buy a stock that is supposedly ready to take off. The schemer can get the action going by buying heavily into a stock that trades on low volume, which usually pumps up the price. The price action induces other investors to buy heavily, pumping the share price even higher. At any point when the schemer feels the buying pressure is ready to fall off, he can dump his shares for a big profit.”

Okay, so a pump and dump within Bitcoin is possible, however it would be very difficult to execute, this is why generally speaking, pump and dump schemes refer to the lesser known and newer cryptocurrencies. The companies and investors behind the coin can retain overall control, ensuring that once they have finished, they can sell at the best price, ensuring they get the highest profit possible.

According to The Next Web, researchers from Imperial College London have developed a new programme that uses artificial intelligence to predict when pump and dump schemes might be happening. The implications of this are frankly huge, especially when you consider how this might encourage the authorities to respond.

The research

This new system has been developed as a result of research by Jiahua Xu and Benjamin Livshits, who have analysed message history across 358 Telegram accounts between July and November this year. Through their analysis, the pair located 220 different pump events that had been arranged through the various Telegram groups - i.e. people within the groups have been working together to manipulate the price of different cryptocurrencies.

Through this, the research then moved on to helping the pair decide which sort of events and occurrences could lead to a Telegram led pump and dump, which in turn has been used to develop a model that can predict the likelihood of further pump and dump events.

According to The Next Web:

“The researchers uncovered an alarmingly high number of pump-and-dump schemes. Xu and Livshits state that there are over 100 Telegram channels dedicated to the pumping and dumping of lesser known coins, these channels organize these events twice a day, on average. The researchers estimate this contributes $7 million of artificial trading volume to the cryptocurrency market each month – that’s $84 million per year.”


As stated, the research pair found an alarming number of pump and dump events just through analysing Telegram groups over a short period of time. From this, it was then compared with other market data in order to determine if the events had any impact on the markets. This, then led to recommendations that would in turn be implemented into the programme that is now able to predict when these events could happen, with up to 80% accuracy too.

Referring to The Next Web once more:

“After the algorithm had been taught what to look out for, it was unleashed on the world. In the week between October 30 and November 6, 2018 it found six instances of suspicious “pump-and-dump” like activity, it was correct on five of these cases. Of course, a much longer and broader application of this algorithm needs to be used to truly understand its power. This study only focused on four cryptocurrency exchanges, as such there is the possibility that the trading characteristics on other exchanges might not fit the model.”

This programme is by no means a final project just yet, however it does have the ability to grow and develop over the coming months. The research team now hope to shrink that 20% error rate and make the platform as accurate as possible.

This new system could grow to the point that it is able to totally abolish even the notion of a Bitcoin pump and dump. If this does happen, it could be the first step in ensuring the markets mature and become less volatile, something that we all need to see before Bitcoin has any real chance of seeing mainstream adoption in the coming years.

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