The Doge of Wall Street: Analysis and Detection of Pump and Dump Cryptocurrency Manipulations
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Cryptocurrencies are increasingly popular. Even people who are not experts have started to invest in these securities, and nowadays, cryptocurrency exchanges process transactions for over 100 billion US dollars per month. In spite of this, many cryptocurrencies have low liquidity, and therefore, they are highly prone to market manipulation. This paper performs an in-depth analysis of two market manipulations organized by communities over the Internet: The pump and dump and the crowd pump. The pump and dump scheme is a fraud as old as the stock market. Now, it got new vitality in the loosely regulated market of cryptocurrencies. Groups of highly coordinated people arrange this scam, usually on Telegram and Discord. We monitored these groups for more than 3 years detecting around 900 individual events. We analyze how these communities are organized and how they carry out the fraud. We report on three case studies of pump and dump. Then, we leverage our unique dataset of the verified pump and dumps to build a machine learning model able to detect a pump and dump in 25 seconds from the moment it starts, achieving the results of 94.5 hit the news in the first months of 2021, when a Reddit community inflates the price of the GameStop stocks (GME) of over 1,900 largest stock exchange. Later, other Reddit communities replicate the operation on the cryptocurrency markets. The targets were Dogecoin (DOGE) and Ripple (XRP). We reconstruct how these operations developed, and we discuss differences and analogies with the standard pump and dump. Lastly, we illustrate how it is possible to leverage our classifier to detect this kind of operation too.
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