The Anatomy of a Cryptocurrency Pump-and-Dump Scheme

Jiahua Xu and Benjamin Livshits

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Abstract: While pump-and-dump schemes have attracted the attention of cryptocurrency observers and regulators alike, this paper represents the first detailed empirical query of pump-and-dump activities in cryptocurrency markets. We present a case study of a recent pump-and-dump event, investigate 412 pump-and-dump activities organized in Telegram channels from June 17, 2018 to February 26, 2019, and discover patterns in crypto-markets associated with pump-and-dump schemes. We then build a model that predicts the pump likelihood of all coins listed in a crypto-exchange prior to a pump. The model exhibits high precision as well as robustness, and can be used to create a simple, yet very effective trading strategy, which we empirically demonstrate can generate a return as high as 60% on small retail investments within a span of two and half months. The study provides a proof of concept for strategic crypto-trading and sheds light on the application of machine learning for crime detection.

Date: 2018-11, Revised 2019-08
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Citations: View citations in EconPapers (19)

Published in Proceedings of the 28th USENIX Security Symposium (2019) 1609-1625

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Persistent link: https://EconPapers.repec.org/RePEc:arx:papers:1811.10109

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