MARKET MANIPULATION: AN ANALYSIS OF CRYPTOCURRENCY PUMP AND DUMP SCHEMES

Abstract

Market manipulation can have a significant and adverse impact on financial markets, as well as the overall economy, resulting in huge financial losses every year. With the advent of cryptocurrencies, market manipulation has become an even larger problem due to the anonymity and global access afforded to perpetrators. This study delves into one form of market manipulation, namely, pump and dump schemes organized by social media group administrators. Drawing on a sample of 585 distinct pump and dump cases spanning four years, the research employs descriptive statistics, regression analysis and machine learning algorithms to examine this form of market manipulation. The findings indicate that these 585 pumps involved billions of dollars and caused significant impact on the targeted markets. The findings also highlight the existence of clear patterns that can assist investors and regulators in better understanding, detecting, and combatting this form of market manipulation. We find that there are some factors that can increase the likelihood of a cryptocurrency being a target of a pump and dump scheme. We also find factors that are determinants of the level of success the pump and dump schemes achieve.