On November 25, 2018, scientists from Imperial College London issued a paper “The Anatomy of a Cryptocurrency Pump-and-Dump Scheme” where they proved that machine learning can be used in predicting such illicit schemes.

A pump-and-dump is usually made by a group of persons who use their united buying power to artificially raise the price of an asset; subsequently, organizer of this scheme sell out this asset is  near its peak. Many other people believe that the price is a sign of an increased interest and buy unvalued asset at high price.

Telegram messenger is often used to create these groups, and one of the most notorious one is ‘Official McAfee Pump Signals’ with more than 12,000 members.

Using machine learning, researchers from Imperial College London analyzed more 300 Telegram channels, and find out 220 ‘pump events’, which were used to build pump-and-dump model. This model showed the potencial to  predict a pump with 80% accuracy.

It was also shown that some exchanges are involved in such pump-and-dump schemes. The scientists highlight the YoBit exchange as one of them.

Also, the authors estimated that almost 7 million USD of monthly digital currency trading volume is engaged in pump-and-dump schemes. At the moment, that still represent only 0.0438%of the market.

Author: Alena Snezhnaya