The integrity of the cryptocurrency ecosystem has improved over the years, but the poor report that accompanies cases of so-called pumping and emptying systems continues to cloud the industry.
Market manipulation has been a major problem for crypto markets in recent years. Although illicit activities range from the washing trade to the whale trade, pumping and dumping systems carried out by self-organized groups on the Internet are the most common form of manipulation.
A recent study by the Department of Informatics at Sapienza University in Rome claimed that the largest group of pump signals had been identified as one of the largest exchanges in the world - Binance . The study suggests that the organized actions of the group were able to generate a volume of transactions of a value of 5176 BTC in one operation.
After undertaking two major case studies, the report suggested a way to better understand and detect the pumping and emptying system in an active market. The detection was carried out only on Binance because the exchange exposes APIs which allow the retracement of each unique transaction in the history of a trading pair. However, the report says:
"The Binance APIs do not tell the type of order (for example: Market, Limit, Stop Loss) placed by the buyer, so we must infer this information. As we do not know the original nature of these orders, we define them as urgent orders. We believe that we have a good witness to the sudden rise in market orders, even with this approximation. "
Source: Pump and Dumps in the Bitcoin era : real-time detection of manipulation of the cryptocurrency market
The study identified that rush orders were rare in the hours before the pump and suddenly increased just towards the start of the program. However, using the analysis of urgent orders, among the main manipulations, different groups organize diagrams on the same altcoin over periods of time always spaced by a few days.
In addition, the report also suggests that if the stock markets keep a close eye on buy and sell orders, a pump and dump system can be detected as soon as it begins to take shape.
Self-regulation could possibly help exchanges avoid manipulation
One of the means suggested in 2018 by the Ministry of Justice (DoJ) and the Commodities Futures Trading Commission (CFTC) is the method of self-regulation of crypto-assets.
Unregulated markets are more likely to attract illegal practices; therefore, such a trade policy and detailed market surveillance can avoid such trade.
One such step was taken by Bittrex Exchange in 2019 after announcing that market players involved in the manipulation will be held accountable. Since then, market manipulation has dropped considerably on the stock market, according to the study.