Pump, Dump, and then What? The Long-Term Impact of Cryptocurrency Pump-and-Dump Schemes

TL;DR

This study analyzes the long-term effects of cryptocurrency pump-and-dump schemes, revealing that despite short-term gains, these manipulative tactics generally lead to significant long-term price declines in targeted coins.

Contribution

It introduces a large-scale dataset of pump events from Telegram and examines the long-term impact on 765 coins, highlighting the negative consequences of pump-and-dump schemes.

Findings

Average 30% price drop one year after pump events

Short-term positive impacts are often followed by long-term declines

Pump schemes are widespread and damaging in cryptocurrency markets

Abstract

The pump and dump scheme is a form of market manipulation attack in which coordinated actors drive up the price of an asset in order to sell at a higher price. Due in part to a lack of enforcement, these schemes are widespread within the cryptocurrency marketplace, but the negative impact of these events on the coins they target is not yet fully understood. Drawing upon a novel dataset of pump events extracted from Telegram channels, an order of magnitude larger than the nearest comparable dataset in the literature, we explore the differing tactics of pumping channels and the long-term impact of pump and dump schemes across 765 coins. We find that, despite a short-term positive impact in some cases, the long-term impact of pump and dump schemes on the targeted assets is negative, amounting to an average 30% relative drop in price a year after the pump event.