Researchers Use Machine Learning to Find Crypto Pump & Dumps Before They Happen

Justine Pope
  • Researchers in the United Kingdom used machine learning to find pump and dump scams in the cryptocurrency market.
  • By looking for unusual buying activity, the algorithm was able to identify five coins that pumped over 100%.

Researchers from the United Kingdom have decided to study one of cryptocurrency’s worst diseases: the pump and dump scam. Now that there are almost 2,000 cryptocurrencies on the market, scammers have a plethora of options for choosing targets for pumping and dumping.

To fight back, these researchers set out to determine how pump and dumps work, and see if they could identify them before they begin. Jiahua Xu and Benjamin Livshits from the Imperial College London wrote a paper called, “The Anatomy of a Cryptocurrency Pump-and-Dump Scheme.” Inside this paper, they use machine learning to try to identify pump and dump scams before they happen.

A pump and dump scam is a form of insider trading. Pump and dumps have existed across all markets, but due to cryptocurrency’s low liquidity and easy access, this market has become ripe for scams. Things got so bad that earlier this year, the US Commodity Futures Trading Commission (CFTC) issued a warning about cryptocurrency pump and dumps, and even offered bounties for pump and dump organizers.

Earlier this year, CryptoGlobe revealedsocial media influencers were organizing cryptocurrency pump and dump schemes. These were reported to the SEC and the FBI by the community after being exposed by a Steemit user.

To learn about pump and dumps, the researchers studied previous pump and dumps to find trends. “Xu and Livshits say that on average there are two pump-and-dump scams every day and that these generate about $7 million worth of trading volume a month.”

After collecting data, the research team found that unusual buying volume frequently appeared before the pump, indicating the the organizers were buying. So, the team built a machine learning algorithm that would find unusual buying volume, believing that the volume would lead to a pump.

They put their algorithm to the test - and it worked. The program identified six cryptocurrencies that were about to pump. Of those six, five of them went up over 100%, and one did not see much growth. Five out of six is an excellent hit rate, so the experiment was a definite success.

How Pump And Dumps WorK

Here’s how a pump and dump is accomplished. First, the organizers select a little-known cryptocurrency. The smaller the better, because larger coins will take more money to move the market. Little coins (with less volume) can be manipulated with ease.

Next, the organizers slowly accumulate the coin of choice, so that they can make sure they have a position before the masses. They then alert their followers of the date and time of the pump, so they can all be ready. Once the time comes, the organizers announce the coin that will be pumped, and usually include a pump target.

Then the pump happens, and the price skyrockets as speculators dive in trying to ride the wave. Usually, price ends the pump with a dump, where it returns back to its starting point, leaving some traders holding the bag. The entire cycle is over within minutes.

To learn more, click here to read a summary of the paper from MIT Technology Review, or click here to read the entire research paper.

JPMorgan Chase Accused of Fixing Metal Prices Despite Talk of Bitcoin Market Manipulation

  • Wall Street giant JPMorgan Chase's metals desk has been accused of 'thousands' of trades related to price-fixing.
  • US prosecutors have invoked RICO laws against the bank which are reserved for organized crime rings. 

While the U.S. Securities & Exchange Commission (SEC) and other regulatory bodies have been critical of bitcoin over market manipulation, new reports reveal that JPMorgan Chase is facing allegations of fixing prices for precious metals. 

JPMorgan Chase Price-Fixing

According to a report by Bloomberg on Sept. 16, U.S. prosecutors have invoked the racketeering law (RICO) against JPMorgan Chase’s metals desk, which is being described as a criminal enterprise. For nearly a decade, employees of the trading desk have allegedly engaged in thousands of illegal moves to price-fix precious metals and defraud market investors. 

Assistant Attorney General Brian Benczkowski told journalists, 

Based on the fact that it was conduct that was widespread on the desk, it was engaged in in thousands of episodes over an eight-year period -- that it is precisely the kind of conduct that the RICO statute is meant to punish.

RICO is typically reserved for only the most severe, organized crime rings, with former prosecutors calling it a bold move by the Justice Department against the bank. Prosecutors claim that more than a dozen employees participated in the scheme, with two having already pleaded guilty and cooperating with authorities. 

Crypto supporters have been quick to point out the irony in JPMorgan’s situation. Jamie Dimon, CEO of the Wall Street bank, has been one of the most vocal detractors of bitcoin over the years, famously calling the crypto-asset a “fraud” in Sept. 2017.

 

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