In 2022, almost one out of every four new crypto coins had on-chain characteristics reminiscent of pump-and-dump schemes, according to Chainalysis.
The Blockchain data platform analysis revealed that only 40,521 of the 1.1 million token releases last year had “at least ten swaps and four days of trading after their launch.”
Consequently, the pump-and-dump scheme victims lost about $4.6 billion in cryptocurrency, according to the blockchain analytics company. In contrast, after selling their interests, the inventors made $30 million in profit.
More details: Chainalysis looked at the group of new initiatives that “had an impact on the crypto ecosystem” and determined which ones saw a value loss of at least 90% in their first trading week, indicating that the token issuers sold their holdings swiftly.
9,902, or 24%, of the 40,521 tokens issued in 2022 that attracted enough interest to be worth examining experienced a price fall in the first week, which may have been a sign of pump-and-dump activities.
Chainalysis notes that rather than conscious planning, some of these projects may have failed due to market pressures, biological infrastructure problems, or both.
- “Although it’s difficult to know the marketing plan or goals of all 9,902 tokens, we did check the 25 with the largest first-week price decrease on Token Sniffer, a tool that rates new tokens on a scale of zero to 100 based on their trustworthiness and deducts points for any scam-like traits. Those 25 tokens received zero points from Token Sniffer, suggesting that they were probably certainly made for a pump and dump in accordance with Token Sniffer’s evaluation standards,” the Chainalysis report said.
The losses: Last year, purchasers of the alleged pump-and-dump altcoins spent a total of $4.6 billion in cryptocurrency. Chainalysis noted that the investors weren’t connected to the token developers. According to the blockchain data company, the pump-and-dump scammers stole $30 million in earnings. Another indication that the wallets implicated in the schemes share common ownership was an on-chain pattern.
Many of the projects, according to the Token Sniffer service, featured “honeypot” coding that prevented new customers from selling their tokens.
What you should know: Pump-and-dump operations on the crypto market are particularly disruptive due to the ease of releasing new tokens and the social media-driven nature of the market.
Many predict that the adoption of crypto assets will soon reach an inflexion point that might lead to widespread acceptance, but this may be challenging if the public views cryptocurrencies as being full of pump-and-dump schemes that prey on novices.
