The Anatomy of a Cryptocurrency Pump-and-Dump Scheme

11/25/2018

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by   Jiahua Xu, et al.

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While pump-and-dump schemes have attracted the attention of cryptocurrency observers and regulators alike, this paper is the first detailed study of pump-and-dump activities in cryptocurrency markets. We present a case study of a recent pump-and-dump event, investigate 220 pump-and-dump activities organized in Telegram channels from July 21, 2018 to November 18, 2018, and discover patterns in crypto-markets associated with pump-and-dump schemes. We then build a model that predicts the pump likelihood of a given coin prior to a pump. The model exhibits high precision as well as robustness, and can be used to create a simple, yet very effective trading strategy, which we empirically demonstrate can generate a return as high as 80 weeks.