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‘Market manipulation 101’: Wolf of Wall Street-style ‘pump and dump’ scams plague cryptocurrency markets



LONDON — Cryptocurrency exchanges are rife with “pump and dump” scams that would be illegal in most markets and leave unsuspecting investors at risk of large losses, a Business Insider investigation has found.

Crypto traders are using the secure messaging app Telegram to orchestrate the scams. Their strategy is to suddenly inflate the price of a cryptocurrency by coordinating a few buyers to act at specific times.

Then, after the price rises, they attract other, unwitting investors to buy into the price momentum. The “pumpers” quickly sell the coin to make a profit. The coins often crash just minutes after the initial surge, leaving the second wave of investors with losses.

IMG_9139Messages on the Telegram channel “PumpKings Community.”Oscar Williams-Grut/Business Insider/Telegram

The same scam was most famously carried out in the stock market by the “Wolf of Wall Street” Jordan Belfort, the convicted securities fraudster whose exploits were turned into a film starring Leonardo DiCaprio.

Business Insider observed “pump and dumps” for the cryptocurrencies UBQ, VCash, Chill Coin, Magi Coin, and Indorse over the last two weeks alone. All the scams took place on either Las Vegas-based exchange Bittrex or Russian exchange Yobit.

Ben Yates, a senior associate at law firm RPC who has looked closely at the space, told Business Insider: “It’s clear from even casual monitoring of the exchanges that this sort of activity is rife, particularly with altcoins with smaller circulation.”

Cryptocurrency exchanges and markets are unregulated in most parts of the world and so these activities are not illegal. However, they highlight the risks associated with this new corner of finance, which has attracted huge amounts of capital in 2017 but is regarded as the “wild west” by critics.

“Pump and dump” schemes are illegal in government-regulated public stock markets, like the London and New York stock exchanges. Several securities lawyers BI spoke to argued that cryptocurrency exchanges should be regulated in the same way. The US Securities and Exchange Commission has said digital currencies are likely to fall under existing securities laws, but it has so far taken little enforcement action.

A $200 billion market

Cryptocurrencies have exploded in popularity in 2017 thanks to the success of “initial coin offerings” (ICOs), where startups issue new digital coins in exchange for real money used to fund their ideas. These coins can be traded on online exchanges, offering greater liquidity to investors in private companies.

Floyd MayweatherBoxer Floyd Mayweather has promoted an ICO. Ethan Miller/Getty Images

Over $3 billion has been raised through ICOs since the start of the year and there are now more than 1,200 cryptocurrencies in circulation, according to Celebrities such as Paris Hilton, boxer Floyd Mayweather, rapper The Game, and DJ Khaled have all endorsed ICOs, helping raise the profile of digital currencies.

While retail investors have rushed into the new market, many people have warned about the potential dangers of the emerging space.

Belfort himself, who served 22 months in prison for securities fraud and money laundering in 2000, said recently that ICOs are “a huge gigantic scam that’s going to blow up in so many people’s faces. It’s far worse than anything I was ever doing.”

The European Securities and Markets Watchdog (ESMA) said on Monday that ICOs are “extremely risky and highly speculative investments” and “many of the coins or tokens… have no intrinsic value other than… to use them to access or use a service/product.” Investors risk “the total loss of your investment”, ESMA warned.

Despite similar warnings from other regulators, the total cryptocurrency market has ballooned to almost $200 billion this year. However, well-known coins such as bitcoin, ethereum, and bitcoin cash account for 80% of the market by value, meaning there are a huge number of low-value coins in circulation. Most have thin trading volumes, making them ripe for “pump and dump” manipulation, like penny stocks.

‘Market manipulation 101’

“Pump and dump” scams involve people artificially boosting the price of an asset before offloading it to unsuspecting investors at the higher price.

Scammers first organise coordinated buying of a particular coin on a set exchange at a set time. The wave of demand pushes up the price.

The “pumpers” then use social media, online discussion forums, and message boards to attract new buyers. They generally argue that the price spike is evidence of a sustained rally. The “pumpers” then offload their coins to the new buyers who come into the market at a higher price. In most cases, this coordinated “dump” depresses the price of the coins back to their pre-pump levels.

pump walkthroughHow a pump and dump scam is organised and executed. Business Insider/Screenshot/Telegram/Yobit

It’s unclear how frequently those involved in the “pump and dump” schemes profit from them, as there is no way to guarantee that any given pump will attract enough new buyers into the market.

Mati Greenspan, a senior market analyst at trading platform eToro who covers the cryptocurrency markets, told Business Insider: “Pump and dump schemes are a real problem. Besides the fact that it is illegal and unethical, the results can be incredibly unpredictable.”

Regardless, such market manipulation would be illegal in most regulated markets whether or not the participants profited.

Ben Kingsley, a partner at law firm Slaughter & May who specialises in financial regulation, told Business Insider: “If you’re organising people to say ‘this is fantastic, I’m amazed everyone’s not piling into it’ as a way to stimulate demand with a view to then selling into a rising market, that’s market manipulation 101.”

RPC’s Yates said: “The sorts of coordinated pump and dump activities we are seeing on cryptocurrency markets would fall foul of numerous prohibitions were they carried out on stock markets – they are practically textbook examples of market manipulation and false trading, for example.”

‘PumpKing Community’

Those involved in the manipulation often make little effort to hide their activities. The “pumping” of coins is regularly referred to in Telegram groups where they are organised.

One group, “PumpKing Community,” contained links to “Instructions for pump on Bittrex,” as well as links to Facebook groups and Telegrams channels where “pumpers” could go to attract new investors to the market.

Channels like these attract participants to the scam with promises of wealth and quick profits. The PumpKing guide read: “Our PUMP will consist of 4 main stages, and we strongly recommend that you divide your deposit into 3 parts in order to get the maximum profit.”

scarfaceThe admin of the PumpKing Community channel on Telegram goes by the name of Ton Montana, an apparent reference to the film Scarface.Screenshot/YouTube/Telegram

“PumpKing Community” is run by a Telegram user called Ton Montana, an apparent reference to the drug lord character of the film Scarface.

Telegram is heavily encrypted and users can hide behind aliases, meaning it is difficult to track those involved. Ton Montana did not respond to a Telegram message sent by Business Insider.

It is unclear how many people are involved in “pump and dump” scams but groups coordinating them have thousands of members. “PumpKing Community” has over 14,000 members.

Michael Jackson, a venture capitalist at Mangrove Capital who has studied the ICO market, told Business Insider: “I think it’s pretty common — not least because it’s a pretty natural thing to do. Many of the pump and dump guys probably don’t think there’s anything wrong and it is just natural PR.”

He added: “Of course, in many regulated environments, such activities end the perpetrator in jail pretty quick.”

An open secret

Knowledge of the “pump and dump” problem appears to be an open secret among many cryptocurrency traders. Several have written blog posts warning traders and new cryptocurrency investors to be wary.

Indian-based crypto trader Abdul Qadir Faridi wrote in a blog post in July that people “profit from these pump & dump activity but by indirectly stealing some new group members money or money of the people buying it for higher price after seeing the surge in price.”

Brian Schuster wrote in a blog post: “Many users who bought at the peak (called bag holders) will often be left holding a cryptocurrency with declining value. These buyers are the true targets of these pump and dumps, the users who will pay 10x to the insiders for a cryptocurrency that is actually worthless. And once the price rises and falls, [it] will almost never return in value.”

‘Regulators will slowly move towards a solution’

“Pump and dumps” persist because cryptocurrency markets and exchanges are largely unregulated. Financial watchdogs around the world are only just getting to grips with initial coin offerings, with US and UK regulators cautioning investors on the risks of the market. China has banned both ICOs and exchanges.

Telegram pump and dump groupA Telegram group coordinating buying of a specific token at a specific time. Business Insider/Oscar Williams-Grut/Screenshot/Telegram

Slaughter & May’s Kingsley said he believes regulators “ought to” take the same approach to policing these scams in the token trading world as they do in relation to securities because “it creates the same harm.”

“It causes unwitting investors to suffer a loss, and it undermines the integrity of those markets,” he said.

“There is definitely some legitimate value-adding activity going on in the cryptocurrency and public coin offering space — not all of it is chancers and con artists. But the problem is when you have activity that either definitely is or might be of that nature, it undermines confidence.”

The chairman of the US Securities and Exchange Commission (SEC) said earlier this month he is “yet to see an ICO that doesn’t have a sufficient number of hallmarks of a security,” suggesting the watchdog is minded to regulate the space like the stock market.

It is unclear whether exchanges Yobit and Bittrex are aware of “pump and dumps” occurring on their platforms. Yobit did not respond to a request for comment from Business Insider.

Asked for comment via its online form, Bittrex said: “Due to an unprecedented amount of growth in a relatively short amount of time we’re experiencing a longer than usual wait time responding to and resolving your requests.”

The message gave no specific comment on the points put to the company by BI. Bittrex said in its message that the company is “actively training new personnel and streamlining our support system to better handle the demand.”

Bittrex advertises on its website that it was “one of the first companies to apply for New York’s Bitlicense,” a bitcoin trading license conceived by the New York Department of Financial Services (NYDFS). The NYDFS declined to comment on whether it was aware of pump and dump scams in the cryptocurrency market or whether it was investigating activity on Bittrex.

The SEC declined to comment. The SEC has previously warned that most coins issued through ICOs would likely qualify as securities, and thus be subject to the same regulations, and has warned investors to be wary of celebrity endorsements.

Mangrove Capital’s Jackson told Business Insider: “Regulators will slowly move towards a solution, recognising the value in ICO for the long-term balanced against the need for a proportionate regulatory framework with significant penalties for avoidance or transgression.”

He believes the market will move to self-regulate, with exchanges making sure participants “act in certain ways and with good procedures” in the same way as stock exchanges and the Lloyd’s of London insurance market do.

The companies behind the coins BI witnessed being “pumped” — UBQ, Chill Coin, Magi Coin, and Indorse — could not be reached for comment. VCash did not respond in time for publication.

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The 3 Best Bitcoin Stocks In 2017

When the calendar does finally flip to 2018, there’s a really good chance we’ll look back and refer to 2017 as the year of the cryptocurrency.



When the calendar does finally flip to 2018, there’s a really good chance we’ll look back and refer to 2017 as the year of the cryptocurrency. At the beginning of the year, the aggregate market cap of all cryptocurrencies was a mere $17.65 billion. By Nov. 12, the 1,276 listed digital currencies had an aggregate market cap of $192 billion. You know, just your standard 988% return in 10 months and 12 days. By comparison, it’s taken the S&P 500 decades to deliver the same return for long-term investors.

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Leading the charge has been the crypto trio of bitcoin, bitcoin cash, and Ethereum. Bitcoin cash, which came into being just months ago after bitcoin’s soft fork, recently exploded higher by 300% in a matter of days, briefly surpassing the market cap of Ethereum. Speaking of which, Ethereum has seen its value increase by nearly 3,700% year to date, to a market cap of $29 billion. Meanwhile, bitcoin, while “underperforming” in a sense compared to its peers, has gained 485% this year (through Nov. 12) and has a market cap of $95 billion.

2017’s best bitcoin stocks
As you might imagine, the popularity of, and gains in, bitcoin have made it an attractive investment. Of course, decentralized cryptocurrency exchanges where bitcoin can be bought aren’t for everyone. Instead, investors have been eagerly looking for bitcoin exposure in the stock market. The following three equities, which have direct and/or indirect ties to bitcoin, have been the best bitcoin stocks of 2017.

Bitcoin Investment Trust: Up 623%
Perhaps unsurprisingly, the top bitcoin stock in 2017 has been Grayscale’s Bitcoin Investment Trust (NASDAQOTH: GBTC), which is up 623% through Nov. 12. The Bitcoin Investment Trust owns a relatively fixed amount of bitcoin, making it easy for investors to calculate its net asset value. Considering its listing on the over-the-counter boards, buying into the Bitcoin Investment Trust gives investors potentially improved liquidity, and perhaps a bit of extra transparency, over purchasing bitcoin directly on a decentralized exchange.

But there’s also a downside that’s pretty tough to overlook. Namely, its market cap has consistently ranged between 25% and 100% higher than its net asset value in recent months. In other words, investors have been willingly paying a huge premium to have a stake in an equity that holds bitcoin, rather than purchasing bitcoin from a decentralized exchange. Is added liquidity worth paying 25% or 50% more than the underlying value of the coins? I really don’t think so, which is why this could be the most dangerous bitcoin investment.

And should you need an added reason to keep your distance, the annual management fee for essentially sitting on bitcoin is a hearty 2% of your investment. Up 199%
Another company that’s caught the bitcoin bug is online retailer (Nasdaq: OSTK), which has gained 199% since the year began. But unlike the Bitcoin Investment Trust, bitcoin isn’t directly responsible for all of Overstock’s gains this year. Although Overstock is the very first major retailer to accept bitcoin (which it’s done since 2014), as well as Ethereum, bitcoin cash, LiteCoin, Dash, and Monero, it’s the company’s subsidiary, tZero, that’s drawing all of the attention.

For months, tZero has been building out the Medici t0 blockchain.  For those unfamiliar, blockchain is the technology that underlies most virtual currencies. It’s the digital and decentralized ledger that records transactions without the need for a financial intermediary like a bank. Best of all, since its usually open source, tampering with the logged data is practically impossible. Blockchain could very well be the future for the financial services industry.

With regard to Overstock, its Medici t0 will be a blockchain-based securities lending system that’ll go toe to toe with Wall Street firms. However, the Medici t0 blockchain is expected to do so more efficiently, securely, and for a lower cost than traditional Wall Street firms. There’s a lot of hype surrounding this blockchain project, which is a big reason Overstock has rallied so much. It remains to be seen if the hype can deliver tangible results.

NVIDIA: Up 102%
Graphics card manufacturer NVIDIA (Nasdaq: NVDA) is another top bitcoin stock, having mustered a gain of 102% since the beginning of the year. In years’ past, the high-powered graphics cards made by NVIDIA were used to mine bitcoin. Today, however, a more specialized chipset known as ASIC handles most bitcoin mining. Nonetheless, NVIDIA’s graphic cards remain a staple for mining a number of burgeoning cryptocurrencies.

But herein lies the dilemma for NVIDIA’s shareholders: The company doesn’t break out what percentage of its sales and sales growth is a direct result of digital currency mining. The company recently reported $1.56 billion in gaming revenue in the third quarter, which is 25% higher than the previous year, and the category where mining sales would be included. But there’s simply no further breakdown within the gaming category, which leaves Wall Street and investors to guess.

However, investors have been able to take advantage of NVIDIA’s growth in data centers and the cloud, which is where its true long-term foundation lies. In just the past seven quarters, data center sales have jumped from $97 million to $501 million. Because NVIDIA has this rapidly growing enterprise and gaming foundation, this is probably the most palatable investment of all stocks with cryptocurrency ties.

This article originally appeared on The Motley Fool.

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5 Tips For New Bitcoin Investors

Taking the plunge and entering the crypto space can be daunting. There is no centralized authority to hold your hand, and the rumors and stories circulating around digital currencies can be fear-inducing.



Authored by Darryn Pollock via,

Taking the plunge and entering the crypto space can be daunting. There is no centralized authority to hold your hand, and the rumors and stories circulating around digital currencies can be fear-inducing.

However, with a few straightforward tips, negotiating that first Bitcoin transaction or trade can be a lot less stressful.

1. Do your homework

There is plenty of hype, rumor, success stories and tales of horror when it comes to Bitcoin and other digital currencies. Make sure you understand exactly what you’re getting into, and don’t risk more money than you could afford to lose.

Bitcoin is an exciting world to be in, but it is one that is complex and confusing if you only enter it on hype. Many people buy expensive cars, not knowing how the engine works, and that is fine because if it breaks there are mechanics and garages. In the cryptocurrency world, it is you against the world, it is decentralized and there is no one to hold your hand.

Pawel Kuskowski, CEO & co-founder of Coinfirm, gave this advice:

“The more you understand, the better off will be.”

Don’t simply speculate about the big money there is to be made, actually go out there and learn how Bitcoin and Blockchain work. Lucas Geiger, founder and CEO of Wireline, says:

“This may seem obvious, but I think the first thing is take time to understand the Blockchain. I say this strongly because few people will do this. If you don’t have a high-level understanding of how a Blockchain stores secure data (such as coins), then you are investing in the equivalent of tulip bulbs.”

A good place to start is the beginning – with Satoshi Nakamoto’s white paper. Crypto fund manager Jacob Eliosoff wrote:

“If you have any technical bent whatsoever, take 10 minutes to leaf through the original 2008 Satoshi white paper. It’s only eight pages, legible and an inspiring work of genius!”

The great thing about the cryptocurrency ecosystem though is that there is a lot of material and information out there. Loads of websites and resources are aiming at trying to make the technology easier to understand.

Even more than that, the investment world is also trying to simplify things by making Bitcoin more available to traditional investors. The introduction of things like futures will help people understand how Bitcoin works.

2. Be cautious

In any investment there will be risk, but that risk is somewhat magnified by Bitcoin’s newness and extreme volatility. Eliosoff emphasized:

“This is still an extremely high-risk space. Don’t invest money you can’t afford to lose!”

It is tempting to be bold and brazen, throwing money at Bitcoin after hearing the success stories, but especially as a first timer, caution is the better part of valor. There is no reason to look to become a millionaire overnight with Bitcoin, and by sinking huge amounts of capital in it from the start, you will be met with more problems than solutions.

Marshall Swatt, a serial entrepreneur, suggested:

“Start small and invest a small portion of your capital.”

Additionally, from Tim Enneking, managing director of Crypto Asset Management, advises:

“Don’t chase Bitcoin prices. Decide on a entry point and stick with it. With Bitcoin, you’re almost always right in terms of foreseeable price action – it’s your timing that might be off. So, be patient, and let the Bitcoin price come to you.”

There are a number of investing strategies that work really well with Bitcoin, and those that offer the most success are often the most cautious.

Things like ‘Dollar Cost Averaging’ – putting in the same amount of money into an investment at the same time each week or month – is great for Bitcoin as it helps you ride out the lows, as well as the highs.

3. Diversify effectively

Most new digital currency enthusiasts hear first about Bitcoin, but there are thousands of other cryptocurrencies out there, and some have grown much faster than even Bitcoin. Diversification is wise, particularly since many of these “altcoins” perform well when Bitcoin drops. Tech entrepreneur Oliver Isaacs writes:

“Hedge against volatility and don’t put all of your eggs in one basket. Much like investing in the stock market or FX, you should diversify your funds as a risk management technique.”

Famed stock picker Ronnie Moas is a strong believer in diversification. It is easy to become infatuated with one cryptocurrency, especially Bitcoin, but it is important to hedge your bets.

“Do not put all your Crypto money into Bitcoin,” Moas warns. “You must diversify across at least a dozen of the more than 1,000 names. Focus on names in the top 50.”

4. Keep coins off the exchanges

There is still a lot of hacking and thievery that goes on in the crypto space, and it is important to take precautions. It isn’t too hard to make hackers’ lives difficult. Use the exchanges for just that: exchanging. Once you have bought a currency, move the money off the exchange and into a wallet that only you control, such as a hardware wallet.

A lot of people have been burned on exchange hacks – none more so than the major Mt. Gox one – but even recently, things like BTC-e and the charges against their CEO would have caused many people to lose out on huge amounts of money.

Matthew Unger, founder and CEO of iComply Investor Services Inc. suggested:

“Just like you keep some cash in your wallet, some in your bank account and perhaps the really valuable stuff in a safe, you need to manage digital currencies in the same way.”

5. Get ready for a wild ride

Bitcoin is notorious for its volatility, so much so that many traditional investors are terrified of it. A massive drop in Bitcoin’s price does not spell permanent disaster, but it is hard to stay committed when you start heading into the red.

Diversification is a great strategy to help with that, but it takes some thought and effort. Of course, the most famous (and so far, successful) Bitcoin strategy of all is to ‘hodl’ – or hold onto –  your investment no matter the market volatility.

You can also buy and forget, as not keeping an eye on the market can help keep you from worrying about the dips and miss the volatility.

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Introducing Crypto-IRAs

Perhaps you’re looking for more diversification beyond those traditional investments that your custodian offers.



Do you have an IRA with a major brokerage firm or online company?

If so, you probably own stocks, bonds, ETFs, CDs, or mutual funds in the account.

But perhaps you’re looking for more diversification beyond those traditional investments that your custodian offers.

For example, there’s a massive ranch just north of my house. It boasts thousands of acres of unspoiled nature. And over time, the value of undeveloped parcels there have just gone up and up.

So I’ve seriously considered buying one, but most of my investable assets are inside retirement accounts.

The last thing I want to do is withdraw the money and face taxes or penalties.

Enter self-directed IRAs …

I briefly mentioned these in a previous article about regular Individual Retirement Accounts.

Self-directed IRAs have the same contribution limits and tax benefits as traditional or Roth IRAs.

The big difference is that you can own a range of non-traditional investments inside self-directed IRAs, including everything from private companies to tax liens.

When it comes to holding real property in a self-directed IRA (anything from raw land to rental units), there are just some catches you need to know about.

Here are the most important ones:

  • You’ll lose all the regular tax benefits of owning investment real estate like depreciation since the property is held in a tax-deferred account. On top of that, if you borrow money to buy the property, you could trigger unrelated business taxable income.
  • You must also avoid self-dealing, which includes personal use of the property as well as other direct relatives. For example, you can’t purchase a beach house that you want to use for vacations or buy a condo for your child.
  • You are restricted when it comes to managing the property. For example, you can’t do improvements or perform maintenance yourself.
  • You also have to think about required minimum distributions (RMD) when you turn 70½. It’s pretty hard to liquidate a piece of a duplex.
  • And in the meantime, what if the building needs a major repair? You can’t use outside money to cover the expense. Same goes for property taxes or other expenses. So you’ll have to keep a solid cash reserve on hand inside the account.
  • Likewise, any income the property generates must stay inside the IRA if you want to defer taxes and avoid penalties.

In my personal opinion, raw land or simple rentals would be the most appropriate ways to hold real estate inside a self-directed IRA for some of the reasons cited above.

Of course, there are other possibilities, too … even something as progressive as bitcoin.

As you might know, bitcoin is an online currency that was created in 2009. And many people, including Bill Gates, see it as the future of money.

Since the IRS considers bitcoin a capital asset, any money invested in it is subject to capital gains taxes when sold at a profit.

So holding bitcoin in a tax-deferred account, like a self-directed IRA, would be a great move, too.

Full disclosure if you’re new to IRAs: There are things you cannot hold in your self-directed IRA?

Here are some prohibited items:

  • Life insurance
  • Collectibles such as artwork, rugs, antiques, or stamps
  • S-corporation shares
  • Metals – though some kinds of bullion are allowed (including very fine bars of gold and silver as well as some forms of platinum and palladium)
  • Coins – with certain exceptions (gold and silver American eagles, for example, are permitted)

How to set up a self-directed IRA

First, find an IRA custodian or administrator who focuses on these types of accounts.

You might want to ask your CPA or financial adviser for recommendations. Another source is the Retirement Industry Trust Association. Click here for a list of its members.

After you open the account, you’ll need to fund it by moving money from an existing IRA or making a new contribution to your self-directed IRA.

Then you’re ready to invest!

A final note of caution: Your custodian or administrator will not perform due diligence on your investments, nor are they responsible for any tax consequences. They only execute your instructions. So do your research before investing!

To a richer life,

Nilus Mattive

Nilus Mattive
Editor, The Rich Life Roadmap

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