Creators of crypto-token pump-and-dump schemes made an estimated $30 million in profits selling their holdings before the token’s value plummeted, blockchain analytics firm Chainalysis said Thursday in a report.
Of the 40,521 crypto tokens launched and traded in 2022, about a quarter of them saw a drastic price drop in the first week, indicating possible pump and dump activity, the report said.
The researchers defined a “drastic price drop” as any token that saw a drop of 90% or more in the first week of trading, which they said could indicate that the token’s earliest holders dumped the token extremely quickly.
In traditional finance, pump and dump schemes refer to holders of a tradable asset heavily marketing it to other investors, often misleading them into investing, causing the price to rise rapidly as the new investors buy in. The owners then sell their overvalued shares at a profit, causing a sudden price drop, leaving the new investors stuck with a low asset value.
Due to the relative ease with which bad actors can launch a new token and promote it on social media, the practice is becoming common in crypto, the Chainalysis 2023 Crypto Crime Report states.
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 research focused on projects that achieved a minimum of 10 swaps and four consecutive days of trading in the week following launch, reducing the 1.1 million figure to 40,521.
“Buyers not believed to be associated with the tokens’ creators spent a total of $4.6 billion in cryptocurrency to acquire some of the 9,902 suspected pump-and-dump tokens we identified,” the report said. “A relatively trivial amount compared to the trillions in crypto transaction volume in 2022, but still a significant amount of damage to unsuspecting investors.”
Crypto scams and hacks took over $3 billion from victims in 2022, and the industry has been trying to regain investor confidence following the collapse of crypto exchange FTX in November 2022. The US Securities and Exchange Commission is also cracking down on crypto betting and exchanges, charging Kraken fined $30 million for failing to register its crypto betting service.
“Many believe that cryptocurrency is approaching a tipping point that may
sparks mass adoption, but that could be difficult if the public perceives cryptocurrency as full of pump-and-dump schemes designed to prey on newcomers, the researchers said.
Meanwhile, prices of major cryptocurrencies have recovered in 2023 from the latter half of 20222. Bitcoin BTCUSD,
was trading at $24,575.21, up 1.8% in the past 24 hours, according to CoinDesk data. Earlier on Thursday, it rose above 25,000 dollars. Ethereum ETH,
was trading at $1,691.05, up 1.6% in the past 24 hours, according to CoinDesk data.
