Cryptocurrency investors funneled up to $4.6 billion worth of crypto tokens suspected of being part of “pump and dump” schemes in 2022.
February 16th report from blockchain analysis firm Chainalysis “analyzed all tokens released” in 2022 on the BNB and Ethereum blockchains and found just over 9,900 features of a “pump and dump” scheme.
A pump and dump scheme typically involves creators mounting a campaign of misleading statements, exaggerations, and Fear of Missing Out (FOMO) to persuade investors to buy tokens while secretly selling their stake in the scheme at inflated prices.
Chainalysis estimated that investors spent $4.6 billion on crypto buying the nearly 9,900+ suspected fraudulent tokens it identified.
The most prolific supposed creator of pump and dump, Chainalysis, who was not named, is suspected of single-handedly launching 264 such tokens last year, with the firm explaining:
“Teams launching new projects and tokens can remain anonymous, making it possible for serial criminals to carry out multiple pump-and-dump schemes.”
Chainalysis classified a token as “worth looking into” as a potential “pump and dump” if it had a minimum of 10 trades and four consecutive days of trading on decentralized exchanges (DEXs) in the week after its launch. Of the 1.1 million new tokens launched last year, only more than 40,500 meet the criteria.
If a token in this group saw a price drop in the first week of 90% or more, Chainalysis deemed it likely that the token was a “pump and dump.” The firm found that 24% of the 40,500 tokens analyzed fit the secondary criteria.
Chainalysis estimated that only 445 people or groups are behind the suspected pump-and-dump tokens, suggesting that the creators often launch multiple projects, and made $30 million in total proceeds from the sale of their holdings.
Related: Navigating the world of cryptocurrencies: tips to avoid scams
“It is possible, of course, that in some cases, the teams involved in the token launches did their best to form a healthy supply, and the subsequent price drop was simply due to market forces,” the firm added.
Despite the troubling statistics, in a separate report, the firm noted that revenue from crypto scams has nearly halved by 2022, largely due to falling cryptocurrency prices.
