Mid-range cryptocurrency exchange YoBit announced that they will be intentionally pumping random coins on their exchange. While touted as a promotional event to encourage more investors to use the Russia-based exchange, the ethics behind the action are questionable at best. YoBit frequently courts controversy – the exchange itself is secretive and under investigation. Despite this, YoBit is a popular exchange – ranked #34 overall as of October 2018. While most crypto-enthusiasts publicly denounce these actions, there’s no doubt that they are a regular feature of the current market environment.
Specifically, a “Pump and Dump” scheme is when an entity – an exchange, a user or a group of users – suddenly and rapidly buys a large volume of a random coin. This causes the price to spike, and the original group sells at the top of the spike. The practice is prevented by heavy regulation in the traditional securities world – but there is little to prevent it in the cryptocurrency industry.
What impact will this have on the industry?
A single exchange actively and openly performing pumping actions is unlikely to cause any serious repercussions. Due to the cost of the action, they will have to stick mostly to smaller market cap coins. However, every unchallenged scam or fraud that occurs in the industry serves to undercut the chances of cryptocurrency becoming a legitimate financial instrument.
YoBit’s actions are a problem because of their audacity – if they can go unpunished, other groups will take note. Volatility is the greatest barrier to large-scale adoption and artificially pumped prices serve only to increase said volatility. YoBit certainly isn’t the first to artificially pump coins – Bitcoin Diamond in particular is well known for their frequent pump and dumps. Further, the frequency of pump and dump schemes in the crypto-sphere is increasing.
What can be done to combat pump and dump schemes?
Government regulation is a double-edged sword. Volatility and the associated price swings are what allow fortunes to be made overnight – and regulation dampens that volatility. However, it brings with it a significant increase in total market volume. As more institutional money is willing to join the market, there is less gambling involved.
Partially, investors need to be better educated to prevent the panic buying that allows these groups to pump in the first place. If the average investor has more knowledge at their command, they are less likely to engage in this type of behavior – as they are the ultimate victim of these type of action.
By: Adam Stone
