Cryptocurrency Pump-and-Dump Schemes
60 PagesPosted: 23 Oct 2018Last revised: 3 Mar 2019
Date Written: February 2019
Pump-and-dump schemes (P&Ds) are pervasive in the cryptocurrency market.
We find that P&Ds lead to short-term bubbles featuring dramatic increases in prices, volume, and volatility.
Prices peak within minutes and quick reversals follow. The evidence we document, including price run-ups before P&Ds start, implies significant wealth transfers between insiders and outsiders. Bittrex, a cryptocurrency exchange, banned P&Ds on November 24, 2017.
Using a difference-in-differences approach, we provide causal evidence that P&Ds are detrimental to the liquidity and price of cryptocurrencies. We discuss potential mechanisms why outsiders are willing to participate and describe how our findings shed light on manipulation theories.
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Keywords: Pump-and-dump scheme, manipulation, cryptocurrency, overconfidence, gambling
JEL Classification: G14, G18, G28, G41
Suggested Citation:Suggested Citation
Li, Tao and Shin, Donghwa and Wang, Baolian, Cryptocurrency Pump-and-Dump Schemes (February 2019).
Available at SSRN: https://ssrn.com/abstract=3267041 or http://dx.doi.org/10.2139/ssrn.3267041