Examining Manipulation Within the Cryptocurrency Market: Can We Identify and Predict Pump and Dumps?

Abstract

Cryptocurrency has surged in popularity over the past few years, capturing the interest of speculative investors, financial institutions, and governments alike. From January 2017 to January 2018, the total cryptocurrency market capitalization grew an unprecedented 9,800%, from $7.1 billion to over $700 billion (CoinMarketCap, 2018). Despite this growth, the market remains thin and illiquid, permeated by thousands of small market cap coins. In this paper, we empirically investigate and provide evidence that the cryptocurrency market is susceptible to manipulation, focusing on pump and dump schemes. Using a unique hand-collected dataset, we identify trends that differentiate manipulation from organic market movement and apply machine learning techniques to predict instances of manipulation. We hope that our findings shed light on this under-studied market, and can help guide future regulatory decisions.