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U.S. regulator warns of cryptocurrency ‘pump-and-dump’

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Anonymous online exchanges which are largely unregulated are the hub for cryptocurrency exchange. Many of these have experienced problems of hacking and technical glitches. The Commodities Futures Trading Commission looks at bitcoin as a commodity. Therefore they have in place anti-fraud and manipulation enforcement authority over virtual currency markets.

What is Pumping & Dumping?

Pumping and dumping of cryptocurrencies are generally played out anonymously on mobile chat apps or on public chatrooms. This helps them in the first step- pumping. Pumping involves posting fake or misleading information to entice other investors to buy a token and thereby inflating its price. Next, these organizers quickly sell i.e dump their holdings of that token and make a profit at the investors’ expense.

CFTC’s Warning

To ensure the protection of investors the U.S. derivatives regulator warned investors, about these “pump-and-dump” scams that spread bogus information aim to rip off investors by inflating the price of cryptocurrencies, on Thursday. CFTC Chairman Christopher Giancarlo said “What we will do and we are doing is looking for fraud and manipulation,” “And we intend to be very aggressive.”

The CFTC said in a statement that it has warned against buying cryptocurrencies based on tips found on social media. It had received multiple complaints from investors having lost money in such schemes. The CFTC has been continuously trying to expand its reach over cryptocurrencies. It has authorized two large U.S. exchanges to list bitcoin futures late last year.

“As with many online frauds, this type of scam is not new – it simply deploys an emerging technology to capitalize on public interest in digital assets,” Erica Elliott Richardson, CFTC director of public affairs, said. “The price falls and victims are left with currency or tokens that are worth much less than what they expected,” the CFTC said in its statement.

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