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.

Crypto Exchange Update: Binance, Bitfinex, Bitstamp, Huobi Global, and Poloniex

Siamak Masnavi

The "Crypto Exchange Update" covers the latest news from Binance, Bitfinex, Bitstamp, Huobi Global, and Poloniex for the week 14 October 2019 to 20 October 2019.

Binance

  • October 14: Binance announced that it would be launching the phase 9 of Binance Lending Products at 12:00 UTC on 16 October 2019. This is when 14-day fixed term lending products for BNB, BTC, BUSD, ETH, MATIC, and USDT became available.
  • October 15:
    • Binance.US listed Dash (DASH).
    • Binance and swiss firm Amun AG jointly announced the launch of a BNB Exchange-Traded Product (ETP) on the regulated segment of the SIX Swiss Exchange.
    • Binance announced support for the staking of Harmony (ONE) tokens on Binance starting on 16 October 2019.
    • Binance introduced the Binance Academy mobile app (available for both iOS and Android).
  • October 16: Binance announced that the next token to go on sale on its IEO platform Binance Launchpad would be Kava (KAVA).
  • October 17:
    • Binance.US listed Algorand (ALGO) and Zcash (ZEC).
    • Binance announced that it had completed the 9th quarterly BNB coin burn (2,061,888 BNB, worth roughly $36.7 million, was burnt).
  • October 18:
    • Binance Futures increased maximum leverage from 20x to 125x for BTC/USDT contracts. 
    • Binance.US said that from 18 October 18 2019, "USD deposits are eligible for FDIC insurance coverage."

Bitfinex

On October 17, Bitfinex announced the launch of the Bitfinex Affiliate Program. Bitfinex customers who join this program and become affiliates can potentially earn "unlimited commission" by sharing invite links across their social media channels.

Bitstamp

On October 15, Bitstamp, Europe's largest crypto exchange by trading volume, announced that it is integrating Ledger Vault’s technology to "enable advanced custody options." Bitstamp and Ledger's joint press release said that Ledger Vault Ledger Vault "will provide flexible wallet tech infrastructure that will allow Bitstamp to set up a sophisticated and very secure custody system with end-to-end hardware backed transfers and a strong multi-authorization governance model, ensuring there are no single points of failure and allowing better management of assets in storage."

Huobi Global

On October 15, Huobi Global said that it had "completed the repurchase and burn of HT for Q3 2019 (a total of 11.3321 million HT, approximately equivalent to 40.6369 million USDT), of which, 8.3389 million HT was directly repurchased from the secondary market, with 2.9932 million HT derived from HT fee income."

Then, on October 18, Huobi announced that it planned to launch a fiat gateway in Turkey that will allow local investors/traders to buy Tether (USDT) with the local currency (the Turkish Lira) via their bank accounts. Then, they can trade USDT against any of the 250 cryptoassets supported by Huobi Global.

Poloniex

On October 18, Poloniex announced that it was being spun out from its parent, FinTech startup Circle, into a new company, Polo Digital Assets, Ltd., "with the backing of a major investment group" so that it would be free "to focus on the needs of global crypto traders with new features, assets and services."

Unfortunately, there was some bad news for Poloniex's U.S. customers since Polo Digital Assets won't be supporting them, which means that (i) U.S. persons will not be allowed to create accounts on Poloniex; and (ii) from 1 November 2019, U.S. customers won't be able to do any more trading on Poloniex, though they can make withdrawals via Circle until 5 December 2019.

 

Featured Image Credit: Photo via Pixabay.com