It doesn’t seem that long ago that penny stocks were all the craze. What soon followed was a flurry of penny stock scams. Many of these were pump and dump and left many unsuspecting investors reeling from the losses. These scams were usually in the form of a newsletter that would inform of the next big stock. It could be a new technology that was going to change the works or a biotech that had the next cancer cure. The newsletter publisher would accumulate lots of the penny stock at a favorable price and before the investor letter and then sell into the frenzied buying that would occur.
Regulators eventually were able to shut most of these down and impose stricter regulations on publishers. Not before thousands of investors got seriously hurt.
With the decentralized and unregulated nature of cryptocurrencies, the pump and dumps have reared its ugly head yet again. The difference now is that some groups are doing it in the open. Some services state the process of the pump and dump and are proud to announce their results. Some of the most significant crypto groups on telegram are related to pump and dumps of cryptocurrencies.
Pump and Dumps are used mainly on new to market ICOs or Initial Coin Offerings. Many new ICOs trade with little liquidity and lots of volatility a deadly combination. Even if these coin manipulators are out in the open, they will only cause irreparable harm to cryptocurrency trading as a whole. Crypto Exchanges need to police the trading activity of their users if they are ever to be taken seriously. Market manipulation is considered to be one of the worst forms of fraud. Crypto exchanges must establish rules and guidelines that can be implemented to protect their clients.
If they not it won’t be long before regulators jump in to protect the trading public. By then it will be too late. It might be time for the Cryptocurrency Exchanges to establish their own SRO or Self-Regulatory Organization. Trading rules and standards can be set to make the cryptocurrency markets uninformed and make sure that all traders are on a level playing field.