Cryptocurrency Pump-and-Dump Schemes on the Rise
According to a recent report by Chainalysis, nearly a quarter of cryptocurrency tokens launched in the past year exhibited characteristics of a pump-and-dump fraud scheme. This deceptive tactic, commonly seen in traditional finance, involves fraudsters artificially inflating the price of an asset they hold by promoting it to other investors. Once the price reaches a certain point, they sell off their holdings, causing the price to plummet.
The rise of pump-and-dump schemes in the cryptocurrency space can be attributed to the ease with which bad actors can create and launch new tokens. These tradeable digital assets, built on existing blockchain networks like Ethereum and BNB, have become a popular target for scammers looking to make a quick profit.
Chainalysis analyzed over 1.1 million tokens launched last year and found that the majority of them saw little to no activity after their launch. Of the tokens that did gain traction, 24% experienced a dramatic 90% price drop within the first week, signaling a pump-and-dump scam.
Interestingly, the report revealed that some fraudsters were responsible for multiple scams, with one individual launching a staggering 264 suspect tokens in 2022. In total, buyers not associated with the creators of these tokens spent $4.6 billion acquiring them, resulting in substantial losses for unsuspecting investors.
The creators of these fraudulent tokens reportedly made $30 million in profits by selling off their holdings before the value of the tokens plummeted. While this amount may seem relatively small compared to the overall crypto transaction volume, it highlights the significant impact of pump-and-dump schemes on the market.
As investors navigate the volatile world of cryptocurrencies, it is essential to exercise caution and conduct thorough research before investing in any token. By staying informed and vigilant, individuals can protect themselves from falling victim to fraudulent schemes and safeguard their investments in the digital asset space.