Inside a pump and dump scheme

Publish date: 2017-05-03

On May 1st, I got wrapped up in a cryptocurrency pump and dump scheme put on by an anonymous group which involved hundreds of people on the Internet. A pump and dump scheme is where a group of people get together and invest in a cryptocurrency and then promote it (usually with falsehoods and overblown hype) to get others outside of the scheme to buy into it while they themselves sell it at higher prices making a nice profit. Let me start off by saying that you should NOT get involved in these schemes as they do not work and are most likely illegal and surely unethical. As the crypto trading world right now is still in its infancy and there are no laws, it truly is at the "wild west" stage. This attracts many new and enthusiastic traders who see opportunity for great gains at perceived little risk. Luckily, I did not invest much (pocket change) in this scheme, but I did want to go along for the ride to see how it played out. Of the approximately 3 people running the show, I do think at least one of them did have good intentions in mind for everyone to get a fair return.

Here is how it played out:

A Discord group was created and hundreds of people were recruited over a one week period to come join and recruit others for the scheme.
Members were sent to an anonymous polling site where they specified how much they were planning on investing. The total soon went over $200,000 USD.
Members were split into groups and based on how much each group had recruited, the winning group got to decide the shortlist of about 10 coins that would be voted on for the pump. I was lucky enough to be in the voting group with about 25 others.
An hour before the pump was scheduled to start, the voting group were sent to another anonymous poll where we voted for the coin we wanted to see pumped.
After a few minutes, it was obvious that OMNI would be the winner, with PTC coming in a distant second place. I had not voted for either of these coins.
We started noticing that OMNI was already being purchased on Bittrex (the decided upon exchange) before the official announcement of the winning coin to the rest of the members. This started a lot of complaints and drama among the voting group members. It was also leaked outside of the group, so others were seeing OMNI rising in price and starting to buy. So it was decided that the moderators would announce a solution a minute before the scheduled winning coin announcement. At this point nobody but the moderators knew what the plan was, but it was fairly certain it wouldn't be OMNI as we needed to punish the people that had started buying early.
At the scheduled pump time, the winning coin was announced as being PTC, the second place winner. The price of PTC shot up from below 200 sats to a high of 419 sats before dropping quickly again.
We were all supposed to keep buying and let it rise for 30 minutes before starting to sell. We were also supposed to go and shill for the coin at Reddit and 4chan to try and get others to come buy while the price was spiking.
Selling started soon after the very short buy spike and people started to panic, leading to more selling.
The pump and dump was over in about 3 minutes. The people that bought and sold immediately were the only winners. Everybody who was playing fairly and following the rules ended up being bag-holders.



Looking at the graph, it was obvious that there was a lot of buying of PTC already happening 30 minutes before the announcement, so one or all of the moderators were making purchases or had leaked the winning coin. A total volume of about $20,000 USD (nowhere near the "promised" $200,000 but still a lot) traded in a short period. Many people were left with a lot of coin that they were not actually interested in holding and had paid way too much for. A lot of confusion, disappointment and anger on the Discord chat resulted.

I believe that it doesn't matter how well organized a pump and dump scheme is, if there are anonymous people involved then you can't trust everyone (anyone?) to stick to the rules. A new Discord group was started afterward for the losers in this scheme to try and recoup their losses by trying to raise the value of the coin the natural way - participating in its community to stimulate interest and investment over time.

I hope all the new traders involved in this scheme have learned their lesson, pump and dump schemes should be avoided.