The world of cryptocurrency has been experiencing a meteoric rise in recent years, with more and more people investing in various tokens and digital currencies. However, with the rise in popularity has come an increase in fraudulent activities, such as the infamous “pump and dump” schemes.
According to the 2023 Crypto Crime Report by blockchain-analysis firm Chainalysis, creators of these schemes made an estimated $30 million in profits from selling off their holdings before the token value plummeted. Out of the 40,521 crypto tokens that were launched and traded in 2022, about a quarter of them saw a drastic price decline in the first week, indicating possible pump and dump activity.
A drastic price decline was defined as any token that saw a 90% or more decline in the first week of trading, suggesting that the token’s earliest holders dumped the token extremely fast. The relative ease at which bad actors can launch a new token and promote it on social media has made the practice increasingly common in the world of crypto.
The report looked at all tokens launched on the Ethereum and BNB blockchains in 2022, and while more than 1.1 million tokens were launched last year, most saw no traction, as measured by activity on decentralized exchanges. The report found that buyers not believed to be associated with the tokens’ creators spent a total of $4.6 billion worth of cryptocurrency acquiring some of the 9,902 suspected pump and dump tokens identified in the study. This amount is a relatively trivial amount compared to the trillions in crypto transaction volume in 2022, but still a substantial amount of damage for unsuspecting investors.
The crypto industry has been trying to regain trust from investors after the collapse of crypto exchange FTX in November 2022, and scams and hacks took over $3 billion from victims in the same year. As a result, the Securities and Exchange Commission has been cracking down on crypto staking and exchanges, charging Kraken with a $30 million fine for failing to register its crypto staking service.
Investors must be cautious when investing in new crypto tokens and should do their research thoroughly before investing their hard-earned money. It is crucial to avoid falling prey to pump and dump schemes and other fraudulent activities in the world of cryptocurrency.