ANewAgeofCryptocurrencyPump-and-Dump
Author Biography
RonitTuladharisarisingjuniorstudyingfinanceandinformationsystemsattheUniversityof Maryland,RobertH.SmithSchoolofBusiness.Ronit’sresearchinterestsincludetheequity market,financialliteracy,andthedevelopmentoftechnologywithinthefinancialsector These interestsservedascatalystsforhisresearch.Additionally,Ronithasfoundrecentinterestin start-upsafterhavingtheopportunitytoprovideconsultingservicestoalocalstartup, Dockshare.On-campus,RonitisinvolvedandholdsleadershippositionswithinAscendaswell astheCollegiateFinancialManagementAssociation(CFMA).
Acknowledgments
Iwouldliketotaketheopportunitytothankmyprogrammentor,DavidKirsch,forhisconstant supportandguidancethroughoutthisentireprocess.IwouldalsoliketothankJoannaIhm,Nima Farshchi,theentireCSVCteam,andalltheguestspeakersforgoingaboveandbeyondforthe foundingRIFclass.
Abstract
Withthesuddenriseinthepopularityofcryptocurrency,coupledwithalackofregulationwithin thecryptocurrencymarket,manyshadyschemeshavefoundamarkettooperateandthrivein. Amongsttheseschemesistheage-oldpump-and-dump,ascamthathasbeenapartoftheequity marketformanyyears.Myresearchwillaimtohighlightpump-and-dumpswithinthe
cryptocurrencysphere.Butmorespecifically,investigatearecentdevelopmentofthe involvementofsocialmediainfluencersinP&Dschemes.Influencersareutilizingtheirmassive followertopromotevariousaltcoins.However,manyofthesealtcoinsbecomesubjectto pump-and-dumps,leadinghundredsorthousandsofimpressionablefanswithdamaginglosses. Utilizingamultiplecasestudymethod,thisresearchwillinvestigatetheprocessbehind influencer-backedcryptocurrencyprojectsthatendupbeingpumped-and-dumped,aswellasthe impactthatinfluencershaveontheseprojects.
Introduction
Intoday’ssociety,creditcardsandcashareking,andcoupledwithaglobalpandemic,itwas hardtopictureaworldwherecryptocurrencywouldsurgethewayithasoverthepastcoupleof years.Nonetheless,thecryptocurrencyglobalpopularityisgrowingatanunfathomablerate, withpopularcoinslikeBitcoin(BTC)andEthereum(ETH)beingup500+%(Jabotinskyand Sarel,2021)andprovidinginvestorswithreturnsfewwouldhavepredicted.
Aswithanythingthatshowspotentialtomakemoney,scammershavenowflockedtothe cryptocurrencymarket.Andwithlegalregulationsunabletokeepupwiththesuddenevolution ofthecryptomarket,ithasbecomeincreasinglyeasierforscammerstoexploittheobscure natureofthecryptoindustry.Fakeexchanges,Ponzischemes,andpump-and-dumpschemesare amongstthemorepopularschemeswithinthecryptospace(Xiaetal.,2020).Thisstudywill focusonpump-and-dumpschemesandtheirscalabilitythroughtheusageofsocialmedia influencers.
Toanyoneinthecryptoindustryorfamiliarwiththeindustry,theage-oldpump-and-dump schemecertainlyisn’tsomethingnew.Therehavebeennumerousstudiesonthistopicwithinthe
cryptocurrencymarketrangingfromtheanatomyofaP&D(XuandLivshits,2019),methodsof detectionforP&Dscheme(VictorandHageeman,2019),theroleofsocialmediainP&D’s (Nghiemetal.,2020),etc.However,theseschemeshavegrowninscalesimultaneously,with cryptocurrenciesriseoverthepasttwoyears.Andwiththisrise,we’veseenanewdevelopment withP&Dschemes.SocialmediaInfluencershavenowtakentotheirmassiveonlineplatforms topromotealt.coinsandtheirrespectiveTelegramorDiscordgroupsinthehopesofenough tractiontoraisethepriceofsaidalt.coin.Andasthisstudywilluncover,manyofthesecoins endupbeingapartofthetypicalP&Devent.Butthescaleoftheseeventsisanythingbut typical,withhundredsofthousandsofunknowingandimpressionablefansbeingleftoutof pocketandtheinfluencersbeingtheonestogetoutearlyandprofitfromtheirinitialinvestment. ThispaperwillfollowandanalyzethisrecentdevelopmentofcryptoP&Dschemes,something thatpriorliteratureinthisspacehasyettodo.
Literature Review
Observationcasestudymethodsareoneofthemainwaysthatpriorresearchhasbeendoneon thistopic.Aresearcher(s)willexamineandanalyzeapump-and-dumpeventbyjoininganactive pump-and-dumpgroupeitherthroughDiscordorTelegram.ResearchersattheInformation SciencesInstituteatUSCwereabletoillustratetheprogressionofatypicalpump-and-dump schemebyjoiningandobservingaTelegramchannel,MegaPumpGroup.Fromtherethe researcherswereabletogatherdataonhowapump-and-dumpeventisorchestratedby observingasinglepump-and-dumpeventthattookplaceonSeptember5th,2019targetingthe coinDATA(Nghiemetal.,2020).Additionally,theyobservedandreportedanyother interactionswithinthegroup,suchasadminsofthegroupprovidingpositiveassessmentsofpast eventstoenticegroupmembers(Nghiemetal.,2020).We’vealsoseenliteratureon
pump-and-dumpsutilizelongitudinalstudiestocollectdataforpump-and-dumpevents.Zuand Livshits(2019)werethepioneersofusingthelongitudinalstudymethodforthistopic,after havinganalyzedadatasetof412pump-and-dumpeventsspanningfromJune17th,2018to February26th,2019. Thelongitudinalstudyisamethodthatcanyieldalotofdataonpump-and-dumpsduetothe sheervolumeofpump-and-dumpsthatoccureveryday.It’sestimatedtheretobeanaggregate tradingvolumeof~6millionUSDamonthper100groups(XuandLivshits,2019).However,I believethatthecasestudyobservationmethodisonethatIwanttoreplicateformystudyas well.Therehasnotbeenenoughoftheselarge-scale“influencer”pump-and-dumpeventsforme tobeabletocreateadatasetlargeenoughforalongitudinalstudy.Therefore,Ithinkacasestudy methodisthebestoptiontogoaboutillustratinghowtheseoperationsarenowtakingplaceona muchlargerscalethantheypreviouslywere.Icanillustratemyproblemthroughareal-world example,whichcanhelpthereaderunderstandtheunderlyingproblem.Andwiththemajorityof casesoftheseinfluencerpump-and-dumpeventsoccurringveryrecently,itgivesanopportunity toprovidemodern-dayreal-worldcontexttohighlightaproblemthathasnowseepedintopop cultureandisaffectinghundredsofthousandsofimpressionablepeopleworldwide.
Methodology
Comparative Case Study
Followingmyliteraturereviewofcryptocurrencypump-and-dumps,it’sclearthatacasestudy methodisapopularmethodamongstresearchers(Nghiemetal.,2020).Andinmycase,Iwant tobeabletodemonstratehowthisnewtrendofinfluenceraltcoinsisdifferentiatingitselffrom theclassiccryptoP&Dthattakesplaceeveryday.Thebestwaytogoaboutshowingthis
distinctionbetweenthetwoistoconductacomparativecasestudythatanalyzesbotheventsand pitsthemagainsteachother.
Withthiscasestudy,Iplantoresearchhighlypopularaltcoinsthathavebeenbackedbysocial mediainfluencersandhaveservedasafrontforpump-and-dumpschemes.Iwillgatherdata fromvariouscryptocurrencytrackersitesthatwillprovidemethecharts,tradingvolume,market cap,andotherimportantindicatorsvitaltoanalyzingwhetheracoinshouldwarrantany investment.Additionally,Iwillgatheranymarketingormentionoftheserespectivecoinsby socialmediainfluencersonplatformssuchasTwitter,YouTube,etc.Fromthere,Iwillmoveon togatheringdataontypicalcryptocurrencyP&D.Theprocessforthiswilldiffer,asIwillresort todatafrompriorcasestudiesdoneontypicalpump-and-dumpgroupsandevents.Thereason forthisisthatthecurrentcasestudiesdoneoncryptocurrencyP&Dgroupsareveryextensive andallowforacomprehensiveoverviewoftheanatomyofaP&Deventanditsrespective group.
Fromthere,Iwillthenbeabletostackuptheeventsagainstoneanother.Iwillcomparethe scaleofbothevents.Thisincludesboththeirsocialmediascaleandthecoinitself.Thegoalisto uncoverdefinitivedatahighlightingthedisparityinthescaleofthetypicalpumpanddump comparedtothatofaninfluencer-backedpumpanddump.Formanythatjointhetypical P&D-specificgroup,thereisatleastasurface-levelunderstandingofwhatcryptocurrencyis, giventheobscurityofmanyofthesegroups.However,withinfluencersnowtakingadvantageof theirlargeplatformstomarketthesecoins,thereisnowtheissueofherdsofimpressionablefans flockingtotheseTelegramgroupsallwhilehavingnoknowledgeaboutcryptocurrencyand quicklygettingcaughtupinthescam.Ihopemyresearchservesasacrutchinaidingtouncover yetanotherdangeroustrendthatistakingplaceintherealmofcryptocurrency.
Oneofthelimitationswithresearchingaltcoinsisthatit’sdifficulttoconductapriceanalysison thesecoinsduetothembeingsonew.Beingabletofullyanalyzethequalityofaninvestment takesmonthsandyearsofdata,andamajorityofthesecoinshaveaverylimitedlifespan.The activitysurroundingthecointendstodrasticallyfalloffduringandfollowingthedumpforthese coins.Telegramgroupsloseactiveusers,socialmediainfluencersdeletetweets,lowtrading volume,etc.andbecauseofthis,it’shardtofullygraspthecompleteprocessoftheseevents,as theyoccursoquicklyanddisappearjustasquickly.
Case Study (2nd option)
Withhowversatilecasestudiescanbe,IfeltasthoughIcouldalsoutilizethecasestudymethod differentlytoansweranotheruniquesetofproposedresearchquestions.Thesequestionsrevolve aroundspecificallythealtcoinsthemselvesandaremoregearedtowardsstudyingthe involvementoftheinfluencer.Forexample,whatisdrawinginfluencerstotherealmof cryptocurrency?Whatdoestheprocessofgettinganinfluencertobackacoinentail?Whatis goingonbehindthescenes?Whattacticsareinfluencersusingtomarketthesecoinsontheir platform?.There’salotthatgoesintobeingabletosuccessfullyruna“rugpull”onsuchalarge scale.AndIthinkratherthancomparingtheseeventstotheaveragepumpanddump,it’dbe interestingtoconductanin-depthanalysisoftheseeventsastheyaren’taswelldocumentednor discussedwithinthecurrentliteratureandmedia.
Tobeabletoaccomplishthis,Ineedtogatherandexaminethechartsforselected influencer-backedaltcoins.Fromthereit’spossibletodocumentimportantmetricssuchasprice highandlow,24hrvolumehigh/low,etc.duringtheirrespectivelaunchesandthedaysfollowing thelaunch.Thenextstepwastoinvestigatetheinfluencersandtheirinvolvementwiththeir
respectivecoins.TodosoIwentthrougheachinfluencers’Twitteraccountanddocumentedany tweetthatmentionedtheiraltcoin. However,Iranintoanissuewithinfluencersdeletingtweets associatedwiththesealtcoins.Becauseofthis,Iwasn’tabletogatherasmanypostsasIcould, butsomehavesurfacedthatwerecapturedbeforetheyweredeleted.Utilizingboththeimportant dataandmetricsfromtheselectedaltcoinsaswellfindingsfromsocialmediaplatformsofthe coin’srespectiveinfluencer(s),I’mabletodepicttheleveragethataninfluencercanhaveonthe volatilityofaltcoinsthroughtheirsocialmediachannels.,
Findings/Analysis
InfluencerBackedCoinsandRespectiveInfluencers
1. SaveTheKids($KIDS),https://www.youtube.com/watch?v=iLHdygxkLW
a. FazeKay(6.13M-YouTube,891K-Twitter)
b. FazeNikan(1.41M-YouTube,635.2K-Twitter)
c. FazeTeeqo(2.76M- YouTube,1.4M-Twitter)
d. FazeJarvis(4.86M-YouTube,725.1K-Twitter)
e. Ricegum(10.3M-YouTube,2.7M-Twitter)
f. SommerRay(1.87M-YouTube,1.2M-Twitter
2. MilfToken($MILF)
a. AdinRoss(2.4MYouTube,846.1K-Twitter)
3. BankSocial(BSocial)
a. FazeBanks(5.27M-YouTube,2.8M-Twitter)
LookingattheMILFToken24hrchartonthe23rd,24th,and25thvolumeisverystagnant around1-3million,howeveronthe26th,popularinfluencerAdinRosspromotesthetokenonhis TwitchLivestream,fromtherevolumeofthecoinincreasesby534%,thefollowingdayitstill
staysrelativelyhighbecauseofanAdinRosstweetgivingaway10,000MILFToken.However, thedayafterthepromotion,volumedropsbackdown90%andstaysrelativelyflatfromthere.
TheBankSocial24hrchartfollowsasimilartrendtothatofMILFwherewehavethevolumeat around8mill,thenfollowingagiveawaytweetbyaninfluencer,FaZeBanks,thereisa69% increaseinvolumetraded,thenthereisadropof30%andthecurveflattensout,afterthe promotion.Thesefindingssuggestthatinfluencerscanhaveanimmenseimpactonacrypto projectastheirmarketingtacticsattractlargeamountsofbuyers.
It’sacommonmisconceptionthatthepriceoftheassetiswhatmatterswhendumpingacoin,but inreality,volumeisamuchmoreimportantmetric,thisisbecausepriortotheinvolvementof theinfluencer,thedeployerordevelopersofthecoinhavethemajorityofthecirculatingsupply, andinordertodumpthereneedstobemorebuyers.Socialmediainfluencersaren’tnecessarily theretodrivetheprice,somuchastheyaretheretogeneratetrafficandoverallvolumetoaidin themanipulationofthemarket.
Aspriorresearchhasprovidedagreaterunderstandingofthestructureofacryptocurrency pump-and-dump,thisresearchbuildsoffofthetypicalschemeandsuggestsarecent developmentthathasmadeitswaytothemainstream.Thecurrentfindingssuggestaltcoinsthat havebeenbackedbysocialmediainfluencersfollowapump-and-dumptypemovementasthe priceandvolumeactionofthesecoinscoincidewithmarketingploysonsocialmediaplatforms bytherespectiveinfluencer.However,giventhatdigitalassetshaveonlyrecentlyenteredthe mainstream,thereisaverysmallsamplesizetoworkwithtodemonstratethisrelationship. Lookingatthesocialmediastatistics,thereachthattheseinfluencershaveisimmense,making thescaleatwhichtheseschemesaretakingplaceextremelylarge.Movingforward,it’s
importanttocontinuetoshedlightandstrengthentheunderstandingofthisissueby documentingtheoccurrenceoftheseinfluencerprojectsandmonitoringthepriceandvolume actionofthecoinsinvolvedwithintheseprojects.Ibelievethatthenextsteptoelevatethis researchisbyfittingthisintoalargerpicture.ThisisaverynichetopicthatIbelievecanfitinto largertrendsthatwe’veseendevelopedasoflate.Forexample,we’veseenpumpanddumps risewiththenationalstorythatisGameStopstock,Redditmemestocks,etc.,couldthisbejust anextensionofthispumpanddumpmovement?
Works Cited
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Detecting cryptocurrency pump-and-dump frauds using market and social signals.(n.d.). RetrievedDecember29,2021,from https://www.researchgate.net/publication/351988041_Detecting_Cryptocurrency_Pump-a nd-Dump_Frauds_using_Market_and_Social_Signals
Renholding.(2021,March26). How the COVID-19 pandemic affected the cryptocurrency market.CLSBlueSkyBlog.RetrievedDecember29,2021,from https://clsbluesky.law.columbia.edu/2021/03/26/how-the-covid-19-pandemic-affected-the -cryptocurrency-market/
Sinclair,S.(2021,July2). Esports organization FaZe Clan Drops 1 member, suspends 3 following alleged crypto scam.CoinDeskLatestHeadlinesRSS.RetrievedDecember29,
2021,from https://www.coindesk.com/e-sports-organization-faze-clan-kay-nikan-teeqo-jarvis
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Xia,P.,Wang,H.,&Luo,X.(2020,November1). Don't fish in troubled waters! characterizing coronavirus-themed cryptocurrency scams.arXiv.org.RetrievedDecember29,2021, fromhttps://arxiv.org/abs/2007.13639