The Anatomy of a Pump and Dump Group

"The promise of easy money is but a wolf's trap laid out for sheep seeking taller grass." ― James Jean-Pierre

Cryptocurrency is in a prime position to become this generation's digital gold rush; an unparalleled opportunity for wealth acquisition not seen since the stock market boom in the post-WWII era. Yet, with every gold rush comes your trickster, swindler, and confidence men, looking to extract some of the newly discovered riches from the hands of the gullible and naive.

Much has been written recently about the fall of Bitconnect, a well known crypto pyramid scheme, and the subsequent rise of replacement ponzi coins like Davor. However, not all crypto scams engage with the public the way Bitconnect did. Some prefer to exercise more discretion and bring in newcomers via member referrals. The most well known of these are the pump and dump groups.

Market Manipulation

Anyone who has spent time day trading with cryptocurrency understands that the current market is highly susceptible to distortion by other traders. In particular, those known as whales that hold large positions in a particular coin are able to suppress price increases by mounting huge sell walls or in turn stimulating growth on a whim by dropping their sell walls and purchasing more themselves. Whales can also cooperate to pump up the price of a coin over the course of several days until they finally drop their positions on to unsuspecting newcomers and walk away with substantial returns on their initial investment. A recent example of this was the sudden and unexpected rise of Tron (TRX) at the beginning of this month, pumping from 4 cents a coin to an all time high of 30 cents, before eventually descending back down below 10 cents.

For better or worse, the lack of regulatory oversight and the constant inflow of money into the crypto world has opened many avenues for market distortions. However, many of these distortions still leave ample opportunity for savvy traders to profit. In the case of whales manipulating the price down via sell walls, this gives newcomers a longer time frame in which to purchase their coin of choice at a lower price before the price eventually climbs to a more realistic level of support. The fact that the whales also can accumulate more of the coin via their sell walls does not nullify the secondary benefits to the smaller fish in the pond. Where market manipulation begins to profit at the expense of traders is where we see the rise of pump and dump groups.

Dissecting a Discord Pump and Dump Group

One of the biggest of these pump and dump organizations currently recruiting new members into their Discord Server is a group called the Big Signal Pump - Bitcoin Investment Group. Like many of its peers in the confidence game, this group promises its new members a share of the profits when participating in their pump and dump schemes. The truth is that the organization resembles a classic pyramid scheme, with the funds of new members being fed to early adopters and founders.

Promotion in the group is based upon attaining higher ranks gained by inviting other members using a generated Discord invite. The greater number of invites a member has brought into the group, the higher their rank. Currently the highest possible attainable rank is that of chairman, requiring 500 unique invites. Incredibly, the reward for attaining such a rank is a mere 3 second head start in receiving a notification for that weeks pump.

The pumps themselves are a flash in the pan and the "goal" price set by the group is often accomplished within less than 10 seconds. This gives lower ranking members virtually no time to react and place a purchase order below the targeted* goal *before the price inevitably comes tumbling back down. The price action is targeted at lower volume coins on Binance that typically lack significant whale activity or trading bots. As a consequence, the quick price variation is generated almost entirely by orders from the group during their designated pumps. It therefore becomes quite clear what purpose inviting new members serves: they are the designated bagholders for the inner circle to unload upon when they try to join the pump too late and end up selling on the drop. Much like a classic pyramid scheme, they pony up the cash to those above them while hoping to one day have peons feeding them from below.

Don't Get Pumped and Dumped like a Chump.

Those who are new to the cryptotrade must realize one basic principle surrounding groups like the Big Signal. The price is not the only thing getting pumped and dumped. These groups also pump up dreams of easy profits to gullible chumps and then dump them to the curb that much poorer. Do not imagine that you can beat the odds and climb the ranks to get the early pump signal. It is likely the heads of the group have already set a position and a sell order well before they give you any indication. Even at the front of the line for the signal you will always be playing catch up. Furthermore, any participation and recruitment of new members fuels their operation further while taking advantage of new bagholders.

Understand that there is huge potential in Cryptocurrency long term if you are willing to be patient while coins increase adoption with companies and end users globally. Don't allow yourself to become anyone's bagholder. Grab positions in coins you believe in or invest the time to learn how to daytrade efficiently. Always remember, if you can't spot the chump in the game, then you ARE the chump