The Anatomy of a Cryptocurrency Pump-and-Dump Scheme

Authors: 

Jiahua Xu, École polytechnique fédérale de Lausanne (EPFL); Benjamin Livshits, Imperial College London

Abstract: 

While pump-and-dump schemes have attracted the attention of cryptocurrency observers and regulators alike, this paper represents the first detailed empirical query of pump-and-dump activities in cryptocurrency markets. We present a case study of a recent pump-and-dump event, investigate 412 pump-and-dump activities organized in Telegram channels from June 17, 2018 to February 26, 2019, and discover patterns in crypto-markets associated with pump-and-dump schemes. We then build a model that predicts the pump likelihood of all coins listed in a crypto-exchange prior to a pump. The model exhibits high precision as well as robustness, and can be used to create a simple, yet very effective trading strategy, which we empirically demonstrate can generate a return as high as 60% on small retail investments within a span of two and half months. The study provides a proof of concept for strategic crypto-trading and sheds light on the application of machine learning for crime detection.

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BibTeX
@inproceedings {236350,
author = {Jiahua Xu and Benjamin Livshits},
title = {The Anatomy of a Cryptocurrency Pump-and-Dump Scheme},
booktitle = {28th {USENIX} Security Symposium ({USENIX} Security 19)},
year = {2019},
isbn = {978-1-939133-06-9},
address = {Santa Clara, CA},
pages = {1609--1625},
url = {https://www.usenix.org/conference/usenixsecurity19/presentation/xu-jiahua},
publisher = {{USENIX} Association},
month = aug,
}

Presentation Video