What drives cryptocurrency pump and dump schemes: Coin versus market factors?

Abstract

This paper investigates both coin-specific and market-based factors that drive cryptocurrency pump-and-dump schemes. It analyzes a data set comprising 1457 pump events that occurred from January 3, 2018, to January 2, 2022. Empirical findings, derived from binary cross-sectional regression models, reveal several characteristics that increase the likelihood of cryptocurrencies being pumped. These include lower market capitalization, lower trading volume, greater social media popularity, increased developer activity, and fewer exchanges trading them. Furthermore, the study employs count time-series models to examine market-based factors. The results indicate that periods of higher volatility or uncertainty are associated with an increase in pre-announced pump-and-dump activities. Additionally, the analysis shows that macroeconomic factors and specific time-related effects – such as Sundays, certain months, and the COVID-19 period – are significant in explaining the frequency of pump occurrences. Based on these findings, the article discusses several targeted recommendations.