- Business Insider has reported on the prevalence of “pump and dump” scams in cryptocurrency markets.
- A person claiming to organise these scams got in touch with BI after our first report.
- He argues that manipulation is “everywhere” and says it’s “a game.”
- He claims to have made “hundreds of thousands” trading and claims groups on the deep web organise even more sophisticated market manipulations.
LONDON – Meet Nico, a techie from Belgium who spends his days trading.
Nico – the name he gave Business Insider – used to play the stock market but he has increasingly favoured cryptocurrency markets in recent years.
Why? Opportunities to make easy money.
“Market manipulation, it’s everywhere,” Nico told Business Insider. “That’s why this pump-is-the-devil thing is funny.”
Nico contacted Business Insider through an intermediary after we published our investigation into pump and dump scams on cryptocurrency exchanges such as Bittrex and Yobit. Nico claims to run one of the groups on messaging app Telegram that are used to coordinate the buying activity.
"We all use Bittrex for market manipulation," Nico told BI. "Because it's faster and easier and if we are all on the same platform, the price will reflect faster."
Nico's personal bankroll - the amount that he keeps in his account to trade and never withdraws - is $150,000, he said. He has been trading in cryptocurrency markets for two and a half years and estimates he's made "hundreds and thousands" in profit.
What has he spent the money on? A Tesla and a deposit down on a small house, he said. Tesla cars cost between £66,000 and £108,000 in the UK, according to prices listed on the company's website.
A spokesperson for Bittrex told BI that "any kind of market manipulation is strictly prohibited by our terms of service" and said that it "conducts periodic compliance reviews" to "protect our service and users from harm."
BI spoke to Nico for over an hour over Skype text chat, explaining why he and others engage in pump and dump scams, why he doesn't think they are a bad thing, and talking about plans to build a mega-group of pump and dumpers.
Nico was keen to protect his identity (the Skype chat was conducted through a friends account) but did provide links to Telegram groups and a forum on the deep web to support his claims.
Here's what he told BI:
'They know the rules'
The first thing Nico wanted to make clear is he doesn't think the pump and dump scams he helps to organise are bad.
Pump and dump schemes are where people collude to buy a small cryptocurrency at the same time and thus push up the price by inflating demand. Those involved then book a quick profit, often in a matter of minutes, by selling to new investors who are attracted by the rising price.
"Why would it be [bad]?" Nico said. "It's not like in stock trading where it causes victims in real life."
He argues that because the "pump" is so quick - prices can leap higher and then crash in just a matter of minutes - there is no time to mislead other investors as to the nature of the investment. If they lose money that's their own fault for not doing proper research before buying - caveat emptor.
"With Pumps [sic] during one minute, they cannot be thinking that. You would assume that newbies get misinformed but how? There are hundreds of currencies, there is no way they have the time to react to this," he said.
"The ones that lose money are the ones [sic] from our own groups that enter [the pump] too late. And they know the rule[s]."
What are the rules?
"Everyone that doesn't find a price to sell with profit stays in the currency," Nico says. "They always end up winning - because we will pump it again eventually, or another group, and it never takes more than a few days. It's a never-ending cycle."
He adds: "It's like a game - the faster wins. But no innocent victim."
'What is public?'
Nico argues that the "signals" to buy that traders send on Telegram groups are not unlike stock recommendations from analysts.
"Imagine the boss from JP Morgan says 'You should buy that stock it's awesome.' People buy, the price goes up, and six months later he says: 'Now you should take profit, it's risky to hold.'"
But the boss of JP Morgan would make such comments publicly, leaving investors to judge for themselves. If he privately told people to buy a certain stock, based on knowledge of a future disclosure or market move, there could be a case to answer for insider trading.
"What is public? Telegram group are public," Nico said. "Signals are not on deep web but on Telegram groups. Groups form on the deep web, then create Telegram groups, and everyone is free to join these."
Others would disagree. When presented with the evidence BI collected from "pump and dump" groups and their activities, Ben Kingsley, a partner at the law firm Slaughter and May who specialises in financial regulation, said it looked like "market manipulation 101."
'It looks much more 'natural' when it isn't at all'
Nico estimates that are around 20 serious pump and dump groups out there but only five "with real power."
"The most powerful have 15,000 to 25,000 [members]," he said.
Nico claims to be in contact with many of the organisers of the other Telegram groups that coordinate pumps and said he first made contact with them in forums on the dark web.
"We don't communicate on personal information," he said. "We don't even ask. It's like that. We are all in hacking and stuff for years and in these communities, we don't share personal info. To be honest, there is a group on the deep web where we share real illegal info (insider trading) on big companies. That is where I met some of them.
There is a group on the deep web where we share real illegal info (insider trading) on big companies. That is where I met some of them.
"People work for a big company, they have info but they cannot take advantage of it, so they go to that community and give the info. Other people that don't work there will benefit. If the person didn't lie, then he is accepted into the community and can benefit from other people's info."
During the fact-checking of this piece, Nico provided BI with a dark web link to a private forum called "The Stock Insider" that appeared to be genuine. He did not provide a link to crypto trading forums. BI agreed not to publish the address or images of the forum in return for being given the address.
The existence of this group and similar ones have been documented in the past by security firm Red Owl.
On the dark web, Nico claims groups organise cryptocurrency market manipulation in a way that would almost certainly be illegal in most markets.
"There are groups on the deep web where they would say 'Buy that thing and hold until that date, and dump everything on that date and buy again 2 days later when price dropped,'" he said. "It looks much more 'natural' when it isn't at all."
'Our biggest power ever has been around $5 million'
If market manipulation is as rife as Nico claims, have bitcoin or ethereum ever been subject to it?
"We did manipulate these but now it's too hard with big market capitalization," Nico claimed. "Our biggest power ever has been around $5 million... [for] one of the groups."
Bitcoin's market capitalisation stands at over $250 billion as of Friday, meaning a $5 million trade would do little to move the dial.
'We are at war with Bittrex'
The good times could be coming to an end, however.
Bittrex recently emailed customers warning against market manipulation and "pump" groups specifically, shortly after BI published its investigation.
"They clearly are tracking us now, we knew it was going to happen," Nico said. "There has [sic] been many strange things lately on our accounts and many other pump users, and even not pump users, where they locked funds when people asked to withdraw, or things like that, with no apparent reason."
BI has reported on users complaining of difficulties withdrawing money and communicating with Bittrex in recent weeks as the company beefs up its compliance procedures.
"We think they [Bittrex] can't prove you're part of pump community if you trade many cryptos, so now basically we are at war with Bittrex," he adds. "The next few weeks will tell us who has the advantage."
A spokesperson for Bittrex told Business Insider: "To ensure an optimal trading experience and protect our service and users from harm, Bittrex regularly reviews and updates its policies for placing orders on our exchange, as well as conducts periodic compliance reviews.
"As part of that process, we recently alerted Bittrex customers of several policy initiatives, including the removal of orders that are more than 28 days old; an increase in the minimum trade size; the creation of a minimum tick size; and a reminder to our customers that any kind of market manipulation is strictly prohibited by our terms of service."
'WhalePump'
Nico said he is now working on a "mega-group" that will bring all the members of the Telegram pump groups under one roof.
"We are creating a new [Telegram] group called WhalePump where we aim to have at least $10 million power but we will launch our first operation on December 10th," he said.
The status of the project is unclear. The original ban group has accrued just over 3,000 members as of Thursday. But that channel is now redirecting people to a channel called "WhalePump Reborn," which has only 941 members as of Thursday afternoon.
Nico argues that the new group will be within Bittrex's rules. Rather than a quick "pump and dump", he will send longer-term recommendations for coins he thinks people should buy - a little like a stock analyst.
"The main info you have to retain is that we are going to be stronger now with WhalePump incoming. We are going to join our forces and make bigger moves on the markets."