The Australian Securities and Investments Commission (ASIC) has detailed how it shut down crypto “pump and dump” Telegram groups in October.
A pump and dump scheme involves coordinating users to buy large amounts of a thinly traded token to artificially inflate its price using social media. After other investors who aren’t in on the scheme FOMO in on a momentum trade, they cash out with massive gains.
According to the new documents, ASIC has been consulting finance academic and crypto researcher Talis Putnins since early October.
Pump and dump schemes are cyclical, according to Putnins’ 38-slide presentation to ASIC investigators, with peaks in 2018 and 2021. They “correlate with overall market sentiment and prices,” according to the presentation.
A number of factors have changed between 2018 and the time of publication, in October 2021, according to the presentation. In 2018, Putnins documented over 355 cases of crypto market manipulation over the course of six months.
He cited the schemes’ “clear intent to pump” and the lack of any “genuine attempt to generate momentum.” According to the presentation, the schemes are “completely out in the open for everyone to see.”
The presentation detailed the Sept 19 pump of fractional algorithmic stablecoin system, Frax Share (FXS), by the Telegram group “Crypto Binance Trading | Signals & Pumps,” which saw a massive 90 percent on $65 million volume in less than one minute.
“With volumes averaging 40 to 80 million dollars per pump and peaks of up to 450 percent, we are ready to announce our next big pump,” the group announced on September 13.
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“Our primary goal for this pump will be to ensure that every single member of our team makes a substantial profit.” We’ll also try to reach a volume of over 100 million dollars in the first few minutes, with a high percentage gain.”
What are the motivations behind pump-and-dump schemes?
According to the presentation, the groups’ motivations include a perceived lack of legal risk, anonymity in forums, and encryption, as well as a “perception that crypto is unregulated, therefore pumps are legal.”
The new information was revealed in documents obtained through a freedom of information request by The Australian newspaper. The new information was published in the Australian on December 28.
Putnins co-authored a paper titled “A New Wolf in Town?” last year. Manipulation of Cryptocurrency Markets Using Pump-and-Dump Techniques.”
Crypto pump and dumps, according to the report, have resulted in “extreme price distortions of up to 65% on average, abnormal trading volumes in the millions of dollars, and large wealth transfers between participants.”
On October 15, Cointelegraph reported that ASIC was looking into schemes involving crypto and traditional markets that were conducted through social media platforms such as Twitter, Telegram, and HotCopper, an Australian stock chat forum.
At the time, a Telegram account called “ASIC” warned the “ASX Pump Organisation” chat’s 300 members that the watchdog was “monitoring this platform” and that its members were being investigated.
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“It is possible that coordinated stock pumping for profit is illegal. All trades are visible to us, and we have access to trader identities. […] You risk a criminal record, which could include fines of more than $1 million and time in prison.”
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“Even where the activity relates to cryptocurrencies/products that may not be financial products under the Corporations Act,” an ASIC spokesperson told Cointelegraph at the time, “the pump-and-dump practice is concerning as it can lead to investor losses and create unnecessary price volatility.”
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