Crypto crime is initiated in various manners depending on several factors. These crimes can come as a well planned project designed to steal from users or as a process where cyber criminals transfer stolen funds through specific platforms before they are withdrawn or used.
Pump and dump tokens are an example of how crypto crime is committed by creating a project to defraud users. Pump-and-dump scams have been around ever since the conception of a market for securities.
The idea is that a person or group of people buy into a thinly traded asset such as a penny stock when its price is low. They then start disseminating positive news about the asset. More often than not, that positive news is completely contrived.
Studying the pattern of pumps and dumps in 2022, data showed that 24% of all tokens released in 2022 were designed as pump and dump projects. Over the years, this scheme has become more popular in the crypto space, and more investors are falling for it.
Easy to set up crypto tokens
According to Chainalysis, the “ease with which bad actors can launch a new token and establish an artificially high price and market capitalization” by manipulating the trading volume and circulating supply of the project is one factor responsible for the rise of pump and dumps in crypto.
Another factor mentioned in the report is the high level of anonymity. Teams can function throughout the lifespan of a project. Therefore, it’s hard to always trace the founders of pump and dump projects.
Market forces affect crypto tokens
Chainalysis also added that market forces can also play a role in the declining value of certain crypto tokens. Thus, projects can still fail due to “market forces and challenges, even if the roadmap, project design, and vision of the team are excellent, because of less established infrastructure for market creation in the digital asset space”.
The report showed that buyers spent approximately $4.6 billion on the ‘pump and dump tokens’ and the creators of these tokens “made a total of $30 million in profits from selling off their holdings before the tokens’ value plummeted”. Furthermore, the wallets that carry out the sell-offs were discovered to be the same or connected to those that provided liquidity for the token at the building stage.
Read also;
DeFi will be safer if developers do these
Crypto hacks highest in 2022; $3.8 billion stolen – report
