Expiration of futures contracts, sale of tokens, pump and dump

Pump, Dump, and Expiration: The Risks of Cryptocurrency Market Manipulation

A number of tactics are used in the world of cryptocurrency markets to manipulate prices and increase the value of assets. One such tactic is the «pump,» a strategy in which investors buy in anticipation of a price increase. Another tactic is the «dump,» a strategy in which investors sell in large quantities, causing the price to fall. In this article, we will explore the risks associated with this tactic and the new threat of futures expiration.

Pump: A False Sense of Security

In recent years, pump schemes have become increasingly common in the cryptocurrency market. In these schemes, investors buy a particular token or asset based on false promises that its price will increase. The pump creates a false sense of security in investors, who are convinced that their investment will skyrocket. But once the «pump» wears off, the market nosedives, leaving many investors with significant financial losses.

The most notable example of this tactic was the pump-and-dump scheme used in 2013-2014 by Charles Ledbury, also known as «Cryptowars.» Ledbury artificially inflated the price of his cryptocurrency Cryptopay through a series of buying and selling schemes. He then sold all of his holdings at an artificially high price, causing the price to plummet and causing many investors significant financial losses.

Dump: A False Sense of Urgency

Another tactic used in cryptocurrency markets is “dumping.” This strategy involves selling large quantities of a particular token or asset, often just before its value plummets. The goal of this scheme is to drive down the price of the token and quickly make a profit from the sale.

One notable example of a dump was observed in 2020, when a group of investors sold their Bitcoin holdings at an artificially high price. As the price began to fall, many of these investors suffered significant financial losses. The sell-off triggered a sharp correction in the market, leading to another sharp rise in prices.

Expiration: The risk of unpredictable price movements

The expiration of futures contracts is another risk faced by cryptocurrency markets. If a futures contract expires on a specific date, it can cause a sudden price movement if no buyers are willing to buy the asset at the current price. This is because many investors have already sold their assets before expiration and are looking for ways to recoup their losses.

In recent years, the expiration of Bitcoin futures has become a serious concern for investors. In 2018, the market experienced a sharp correction after Bitcoin futures expired on April 2. The price plummeted from $3,600 per coin to $6,800 per coin, causing many investors to lose significant amounts of money.

Pump, Dump, and Expiration Risk

This tactic is used not only by individual investors, but also by larger market participants such as hedge funds and institutional investors. The risks associated with this tactic include:

• Losses to individual investors: The most common risk is that investors will lose their entire investment if a pump or dump scheme fails.

• Market volatility: If a pump or dump scheme is in place, it can cause significant price changes in the market, making it difficult for investors to predict future prices.

• Lack of transparency: Pump and dump schemes often involve opaque transactions, making it difficult for regulators and investors to track what is happening.

Conclusion

The world of cryptocurrency markets is full of risks and uncertainties. Pump, dump, and expiration tactics are just two examples of the many threats that exist in this space.

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