Cryptocurrency Pump-and-Dump Schemes

60 Pages Posted: 23 Oct 2018 Last revised: 3 Mar 2019

See all articles by Tao Li

Tao Li

University of Florida - Department of Finance, Insurance and Real Estate

Donghwa Shin

Princeton University - Department of Economics, Bendheim Center for Finance

Baolian Wang

University of Florida - Department of Finance, Insurance and Real Estate

Date Written: February 2019

Abstract

Pump-and-dump schemes (P&Ds) are pervasive in the cryptocurrency market. We find that P&Ds lead to short-term bubbles featuring dramatic increases in prices, volume, and volatility. Prices peak within minutes and quick reversals follow. The evidence we document, including price run-ups before P&Ds start, implies significant wealth transfers between insiders and outsiders. Bittrex, a cryptocurrency exchange, banned P&Ds on November 24, 2017. Using a difference-in-differences approach, we provide causal evidence that P&Ds are detrimental to the liquidity and price of cryptocurrencies. We discuss potential mechanisms why outsiders are willing to participate and describe how our findings shed light on manipulation theories.

Keywords: Pump-and-dump scheme, manipulation, cryptocurrency, overconfidence, gambling

JEL Classification: G14, G18, G28, G41

Suggested Citation

Li, Tao and Shin, Donghwa and Wang, Baolian, Cryptocurrency Pump-and-Dump Schemes (February 2019). Available at SSRN: https://ssrn.com/abstract=3267041 or http://dx.doi.org/10.2139/ssrn.3267041

Tao Li (Contact Author)

University of Florida - Department of Finance, Insurance and Real Estate ( email )

Warrington College of Business
Gainesville, FL 32611
United States

HOME PAGE: http://warrington.ufl.edu/contact/profile.asp?WEBID=7628

Donghwa Shin

Princeton University - Department of Economics, Bendheim Center for Finance ( email )

Princeton, NJ
United States
6096137699 (Phone)

Baolian Wang

University of Florida - Department of Finance, Insurance and Real Estate ( email )

314 Stuzin Hall
Gainesville, FL 32611
United States

HOME PAGE: http://www.wangbaolian.com

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