Cryptos : the CFTC will provide awards to those who will denounce the pump and dump

The market of crypto-currencies is still nascent. Which means that it still eludes greatly to the control of the regulators. But this atmosphere of Wild West-that weighs on the exchange platforms for crypto-currencies will not last. On 15 February, the CFTC has proposed a system of reward to those who will denounce the famous pump and dump, which take place regularly on the market of cryptos.

Pump and dump ?

It is difficult to translate convincingly the term pump and dump. In good French, you could say that ” inflation and liquidation “, but admit that it is less sexy. You are probably familiar with the principle : it is for a whale, or a group of investors to orchestrate an artificial increase in the price of a crypto-currency. This upward movement draws the naive investors who think that a new major is behind the sudden increase in the price. Afraid to miss the wave, they do not check and buy the crypto-currency. Sometimes, a “fake news” being spread by unscrupulous individuals is used to fool the investors the most gullible. When the price reaches a certain goal, the actors behind the pump sell suddenly their corners, pocketing the way a nice little profit. The price collapses then, leaving those who are left bamboozled with crypto-assets with losses, not very pretty to see.

These groups often act without hiding, either via the messaging application Telegram or Discord. It announces the crypto-currency which will be the subject of pump and dump, the platform on which it will take place, as well as the schedule.

Of the criminal operations, but unpunished until now

Of course, that is criminal, an act punished if it takes place on a regulated market. To tell the truth, the exchanges also have their share of responsibility : there is no doubt that these illegal behaviors are identifiable, in particular when it comes to whales that perform these manipulations. But just as with the spoofing, this technique that involves placing orders that are automatically cancelled by robots when they are close to be able to be completed in order to influence the market, they close their eyes. Some even argue that the platforms the most scabrous deliver themselves in person to these manipulations. There is no tangible evidence to support these accusations, but it would not surprise me.

pump and dumpExample of a typical pump and dump on the DATA – Print screen Bitfinex

The CFTC goes up to the niche, and it is so much better

The CFTC stands for Commodity Futures Trading Commission, issued on 15 February, an official directive, warning Americans of the risks involved in pump and dump. In her note, she explains that this type of transaction is as old as the history of the markets. In the equity markets, they were held in securities of minors, penny stocks (securities on a few cents). Today, with the development of electronic means of communication and the new playing field that are the crypto-currencies, the opportunities to engage in this kind of scam without being worried are many more.

The CFTC has decided to tackle this problem by creating the ” Whisteblower Program “, a program that encourages investors to report these transactions. If the investigation results in a fine of over a million dollars, the whistleblower will receive a reward amounting up to 30 % of the financial sanction.

But to take advantage of this program, you must provide more than the channel that was used to organize the operation. It is necessary to present evidence regarding the individuals who participated, which means that he must have bathed in this medium. Nevertheless, one can hope that some “repented” will seek to earn the money in a way that benefits the community of investors in crypto-currencies, rather than to harm him. If this effort should lead only on a few convictions, might have a deterrent effect.

The platforms need to be more involved

I think that the regulators should primarily focus on the analysis of the trading operations that take place on exchange platforms to empower them. It happens every day things shady, to say the least. For example, you can observe the price movements on Streamr Datacoin (DATA) in December on Bitfinex. No volume, price stable, and then suddenly increase in price on large quantities and fall (example above). This has occurred on numerous occasions. I loved the concept of DATA, but I ended up getting rid of it because of these pump and dump endless.

If platforms for the exchange of crypto-currencies are not prepared to do the work of cleaning, it will be necessary to force them. We can also hope that the emergence of new actors more likely to respect the rules, such as the future platform of the stock exchange of Gibraltar, or of the start-up Otcrit, will help standardize the market currently ruled by anarchy.

How to avoid pump and dump ?

  • Buy crypto-currencies that you have analyzed thoroughly, do you decide not on the basis of a simple increase in the price, which may be temporary
  • Do not buy on the basis of a vulgar advice you have read on the social networks
  • Beware of ads promising yields of ground-breaking