Crypto investors spent $4.6 billion buying “pump and dump” tokens last year
Cryptocurrency investors drove as much as $4.6 billion into crypto tokens suspected of being part of “pump and dump” schemes in 2022.
A February 16 report from blockchain analytics firm Chainalysis “analyzed all tokens launched” in 2022 on the BNB and Ethereum blockchains and found just over 9,900 drills characteristic of a “pump and dump” scheme.
A pump-and-dump scheme usually involves the creators orchestrating a campaign of misleading statements, hype and Fear Of Missing Out (FOMO) to persuade investors to buy tokens while secretly selling their stake in the scheme at inflated prices.
Chainalysis estimated that investors spent $4.6 billion in crypto to buy the nearly more than 9,900 different suspected fake tokens it identified.
The most prolific alleged pump-and-dump creator Chainalysis identified – which was not named – is suspected of single-handedly launching 264 such tokens last year, with the firm explaining:
“Teams launching new projects and tokens can remain anonymous, allowing serial criminals to carry out multiple pump and dump schemes.”
Chainalysis classified a token as “worth analyzing” as a potential “pump and dump” if it had a minimum of 10 swaps and four back-to-back days of trading on decentralized exchanges (DEX) in the week after launch. Of the 1.1 million new tokens launched last year, only over 40,500 meet the criteria.
If a token from this group saw a price drop in the first week of 90% or more, Chainalysis considered it likely that the token was a pump and dump. The firm found that 24% of the 40,500 tokens analyzed fit the secondary criterion.
Chainalysis estimated that only 445 individuals or groups are behind the suspected pump-and-dump tokens — suggesting that creators often start multiple projects — and made $30 million in total profits from selling their holdings.
Related: Navigating the Crypto World: Tips to Avoid Scams
“It is of course possible that in some cases teams involved with token launches did their best to form a healthy supply and the subsequent price drop was simply due to market forces,” the firm added.
Despite the statistics in question, the firm noted in a separate report that crypto fraud revenue was cut in half by 2022, largely due to depressed crypto prices.
