Hostname: page-component-6766d58669-nf276 Total loading time: 0 Render date: 2026-05-18T00:27:29.686Z Has data issue: false hasContentIssue false
  • English
  • Français

Cryptocurrency Pump-and-Dump Schemes

Published online by Cambridge University Press:  04 April 2025

Tao Li ,
Donghwa Shin Open the ORCID record for Donghwa Shin [Opens in a new window]  and
Baolian Wang
Tao Li
Affiliation:
University of Florida Warrington College of Business tao.li@warrington.ufl.edu
Donghwa Shin*
Affiliation:
University of North Carolina at Chapel Hill Kenan-Flagler Business School
Baolian Wang
Affiliation:
University of Florida Warrington College of Business baolian.wang@warrington.ufl.edu
*
Donghwa_Shin@kenan-flagler.unc.edu (corresponding author)
Get access Rights & Permissions [Opens in a new window]

Abstract

We document numerous occurrences of pump-and-dump schemes (P&Ds) targeting cryptocurrencies, which tend to trigger short-term episodes that feature dramatic increases in prices, volume, and volatility, followed by quick reversals. The evidence we document, including price run-ups before P&Ds start, suggests wealth transfers from outsiders to insiders. Our findings based on wallet-level data are consistent with the reasoning that gambling preferences, overconfidence, and naïve reinforcement learning help explain P&D participation. Finally, exploiting two natural experiments in which exchanges altered P&D policies, we find evidence consistent with the idea that P&Ds contribute to reduced cryptocurrency liquidity and lower prices.

Information

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 60 , Issue 8 , December 2025 , pp. 3622 - 3659
Copyright
© The Author(s), 2025. Published by Cambridge University Press on behalf of the Michael G. Foster School of Business, University of Washington

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

Article purchase

Temporarily unavailable

Footnotes

We thank Hendrik Bessembinder (the editor) and the two anonymous referees for their valuable feedback. We have benefited greatly from comments and suggestions made by Vikas Agarwal, Brad Barber, Natalie Cox, Nicholas Barberis, Kent Daniel, Itzhak Ben-David, Utpal Bhattacharya, Justin Birru, Patrick Bolton, David Brown, Markus Brunnermeier, Chris Burniske, Will Cong, Vyacheslav Fos, Simon Gervais, Kathleen Weiss Hanley, Campbell Harvey, Byoung Hwang, Jennifer Huang, Robert Jarrow, Wei Jiang, Lawrence Jin, Andrew Karolyi, Jiasun Li, Ye Li, Stefan Nagel, Andy Naranjo, David Ng, Mahendrarajah Nimalendran, Jun Pan, Jay Ritter, Harley Ryan, Harald Uhlig, Yizhou Xiao, Wei Xiong, David Yermack, Motohiro Yogo, Scott Yonker, and seminar participants at the U.S. Securities and Exchange Commission, the Cheung Kong Graduate School of Business, Cornell University, Fudan University (Fanhai), Korea University, Princeton University, Renmin University, the Shanghai Advanced Institute of Finance, the University of South Florida, the AEA, the LSE Paul Woolley Centre Conference, the CBER Conference, the Crypto Day Conference (Georgetown University), the GSU FinTech Conference, the University Blockchain Research Initiative Conference (UC Berkeley), the ABFER, the Annual Symposium in Financial Economics (ABFER, CEPR, and CUHK), the Chicago Financial Institutions Conference, the CICF, the China Fintech Research Conference (Tsinghua University), and the Toronto FinTech conference. We thank Yiming Chen, Blake Jackson, Chase Maxwell, Gunsu Son, Chuyi Sun, Sishun Wang, Zirui Wang, Wei Yang, and Jiawei Yu for their excellent research assistance. All errors are our own.

References

Aggarwal, R., and Wu, G.. “Stock Market Manipulations.” Journal of Business, 79 (2006), 1915–1953.CrossRefGoogle Scholar
Allen, F., and Gale, D.. “Stock-Price Manipulation.” Review of Financial Studies, 5 (1992), 503–529.CrossRefGoogle Scholar
Anagol, S.; Balasubramaniam, V.; and Ramadorai, T.. “Learning from Noise: Evidence from India’s IPO Lotteries.” Journal of Financial Economics, 140 (2021), 965–986.CrossRefGoogle Scholar
Barber, B., and Odean, T.. “Trading Is Hazardous to Your Wealth: The Common Stock Investment Performance of Individual Investors.” Journal of Finance, 55 (2000), 773–806.CrossRefGoogle Scholar
Barber, B., and Odean, T.. “Boys Will Be Boys: Gender, Overconfidence, and Common Stock Investment.” Quarterly Journal of Economics, 116 (2001), 261–292.CrossRefGoogle Scholar
Barberis, N. “The Psychology of Tail Events: Progress and Challenges.” American Economic Review, 103 (2013), 611–616.CrossRefGoogle Scholar
Barberis, N., and Huang, M.. “Stocks as Lotteries: The Implications of Probability Weighting for Security Prices.” American Economic Review, 98 (2008), 2066–2100.CrossRefGoogle Scholar
Barberis, N.; Mukherjee, A.; and Wang, B.. “Prospect Theory and Stock Returns: An Empirical Test.” Review of Financial Studies, 29 (2016), 3068–3107.CrossRefGoogle Scholar
Benabou, R., and Laroque, G.. “Using Privileged Information to Manipulate Markets: Insiders, Gurus, and Credibility.” Quarterly Journal of Economics, 107 (1992), 921–958.CrossRefGoogle Scholar
Ben-David, I.; Franzoni, F.; Landier, A.; and Moussawi, R.. “Do Hedge Funds Manipulate Stock Prices?” Journal of Finance, 68 (2013), 2383–2434.CrossRefGoogle Scholar
Ben-David, I., and Hirshleifer, D.. “Are Investors Really Reluctant to Realize Their Losses? Trading Responses to Past Returns and the Disposition Effect.” Review of Financial Studies, 25 (2012), 2485–2532.CrossRefGoogle Scholar
Bertrand, M.; Duflo, E.; and Mullainathan, S.. “How Much Should We Trust Differences-in-Differences Estimates?” Quarterly Journal of Economics, 119 (2004), 249–275.CrossRefGoogle Scholar
Birru, J., and Wang, B.. “Nominal Price Illusion.” Journal of Financial Economics, 119 (2016), 578–598.CrossRefGoogle Scholar
Bordalo, P.; Gennaioli, N.; and Shleifer, A.. “Salience Theory of Choice Under Risk.” Quarterly Journal of Economics, 127 (2012), 1243–1285.CrossRefGoogle Scholar
Bordalo, P.; Gennaioli, N.; and Shleifer, A.. “Salience and Asset Prices.” American Economic Review: Papers & Proceedings, 103 (2013), 623–628.CrossRefGoogle Scholar
Bradley, D.; Hanousek, J. Jr.; Jame, R.; and Xiao, Z.. “Place Your Bets? The Value of Investment Research on Reddit’s Wallstreetbets.” Review of Financial Studies, 37 (2024), 1409–1459.CrossRefGoogle Scholar
Chen, T.; Gao, Z.; He, J.; Jiang, W.; and Xiong, W.. “Daily Price Limits and Destructive Market Behavior.” Journal of Econometrics, 208 (2019), 249–264.CrossRefGoogle Scholar
Chiang, Y.; Hirshleifer, D.; Qian, Y.; and Sherman, A. E.. “Do Investors Learn from Experience? Evidence from Frequent IPO Investors.” Review of Financial Studies, 24 (2011), 1560–1589.CrossRefGoogle Scholar
Comerton-Forde, C., and Putnins, T. J.. “Dark Trading and Price Discovery.” Journal of Financial Economics, 118 (2015), 70–92.CrossRefGoogle Scholar
Cong, W., and He, Z.. “Blockchain Disruption and Smart Contracts.” Review of Financial Studies, 32 (2019), 1754–1797.CrossRefGoogle Scholar
Cong, W.; Li, X.; Tang, K.; and Yang, Y.. “Crypto Wash Trading.” Management Science, 69 (2023), 6427–6454.Google Scholar
Daniel, K., and Hirshleifer, D.. “Overconfident Investors, Predictable Returns, and Excessive Trading.” Journal of Economic Perspectives, 29 (2015), 61–88.CrossRefGoogle Scholar
Daniel, K.; Hirshleifer, D.; and Subrahmanyam, A.. “Investor Psychology and Security Market Under-and Overreactions.” Journal of Finance, 5 (1998), 1839–1885.CrossRefGoogle Scholar
Dhawan, A., and Putnins, T. J.. “A New Wolf in Town? Pump-and-Dump Manipulation in Cryptocurrency Markets.” Review of Finance, 27 (2023), 935–975.CrossRefGoogle Scholar
Foley, S.; Karlsen, J.; and Putnins, T.. “Sex, Drugs, and Bitcoin: How Much Illegal Activity Is Financed through Cryptocurrencies?” Review of Financial Studies, 32 (2019), 1798–1853.CrossRefGoogle Scholar
Friedman, M. Essays in Positive Economics. Chicago, IL: University of Chicago Press (1953).Google Scholar
Giannetti, M., and Yue Wang, T.. “Corporate Scandals and Household Stock Market Participation.” Journal of Finance, 71 (2016), 2591–2636.CrossRefGoogle Scholar
Griffin, J., and Shams, A.. “Manipulation in the VIX.” Review of Financial Studies, 31 (2018), 1377–1417.CrossRefGoogle Scholar
Griffin, J., and Shams, A.. “Is Bitcoin Really Un-Tethered?” Journal of Finance, 75 (2020), 1913–1964.CrossRefGoogle Scholar
Gurun, U. G.; Stoffman, N.; and Yonker, S.. “Trust Busting: The Effect of Fraud on Investor Behavior.” Review of Financial Studies, 31 (2018), 1341–1376.CrossRefGoogle Scholar
Hackethal, A.; Leuz, C.; Meyer, S.; Muhn, M.; and Soltes, E.. “Who Falls Prey to the Wolf of Wall Street? Investor Participation in Market Manipulation.” NBER Working Paper No. 24083 (2019).Google Scholar
Hamrick, J. T.; Rouhi, F.; Mukherjee, A.; Feder, A.; Gandal, N.; Moore, T.; and Vasek, M.. “The Economics of Cryptocurrency Pump and Dump Schemes.” Working Paper, available at https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3310307 (2019).Google Scholar
Han, B.; Hirshleifer, D.; and Walden, J.. “Social Transmission Bias and Investor Behavior.” Journal of Financial and Quantitative Analysis, 57 (2022), 390–412.CrossRefGoogle Scholar
Harris, L. “Minimum Price Variations, Discrete Bid–Ask Spreads, and Quotation Sizes.” Review of Financial Studies, 7 (1994), 149–178.CrossRefGoogle Scholar
Henderson, B.; Pearson, N.; and Wang, L.. “Pre-Trade Hedging: Evidence from the Issuance of Retail Structured Products.” Journal of Financial Economics, 137 (2020), 108–128.CrossRefGoogle Scholar
Howell, S.; Niessner, M.; and Yermack, D.. “Initial Coin Offerings: Financing Growth with Cryptocurrency Token Sales.” Review of Financial Studies, 33 (2020), 3925–3974.CrossRefGoogle Scholar
Huberman, G., and Stanzl, W.. “Price Manipulation and Quasi-Arbitrage.” Econometrica, 72 (2004), 1247–1275.CrossRefGoogle Scholar
Jarrow, R. “Market Manipulation, Bubbles, Corners, and Short Squeezes.” Journal of Financial and Quantitative Analysis, 27 (1992), 311–336.CrossRefGoogle Scholar
Jiang, G.; Mahoney, P.; and Mei, J.. “Market Manipulation: A Comprehensive Study of Stock Pools.” Journal of Financial Economics, 77 (2005), 147–170.CrossRefGoogle Scholar
Kamps, J., and Kleinberg, B.. “To the Moon: Defining and Detecting Cryptocurrency Pump-and-Dumps.” Crime Science, 7 (2018), 1–18.CrossRefGoogle Scholar
Khwaja, A. I., and Mian, A.. “Unchecked Intermediaries: Price Manipulation in an Emerging Stock Market?” Journal of Financial Economics, 78 (2005), 203–241.CrossRefGoogle Scholar
Kumar, A. “Who Gambles in the Stock Market?” Journal of Finance, 64 (2009), 1189–1933.Google Scholar
Kaustia, M., and Knupfer, S.. “Do Investors Overweight Personal Experience? Evidence from IPO Subscriptions.” Journal of Finance, 63 (2008), 2679–2702.CrossRefGoogle Scholar
Kyle, A. S., and Viswanathan, S.. “How to Define Illegal Price Manipulation.” American Economic Review: Papers & Proceedings 98 (2008), 274–279.CrossRefGoogle Scholar
Li, T.; Shin, D.; Sun, C.; and Wang, B.. “The Dark Side of Decentralized Finance: Evidence from Meme Tokens.” Working Paper, available at https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4228920 (2022).Google Scholar
Liu, H.; Peng, C.; Xiong, W. X.; and Xiong, W.. “Taming the Bias Zoo.” Journal of Financial Economics, 143 (2022), 716–741.CrossRefGoogle Scholar
Liu, Y., and Tsyvinski, A.. “Risks and Returns of Cryptocurrency.” Review of Financial Studies, 34 (2021), 2689–2727.CrossRefGoogle Scholar
Mahoney, P. “The Stock Pools and the Securities Exchange Act.” Journal of Financial Economics, 51 (1999), 343–369.CrossRefGoogle Scholar
Makarov, I., and Schoar, A.. “Trading and Arbitrage in Cryptocurrency Markets.” Journal of Financial Economics, 135 (2020), 293–319.CrossRefGoogle Scholar
Mei, J.; Wu, G.; and Zhou, C.. “Behavior Based Manipulation: Theory and Prosecution Evidence.” Working Paper, available at https://papers.ssrn.com/sol3/papers.cfm?abstract_id=457880 (2004).Google Scholar
Merrick, J. J.; Naik, N.; and Yadav, P.. “Strategic Trading Behavior and Price Distortion in a Manipulated Market: Anatomy of a Squeeze.” Journal of Financial Economics, 77 (2005), 171–218.CrossRefGoogle Scholar
Ni, S. X.; Pearson, N.; and Poteshman, A.. “Stock Price Clustering on Option Expiration Dates.” Journal of Financial Economics, 78 (2005), 49–87.Google Scholar
Pedersen, L. H. “Game on: Social Networks and Markets.” Journal of Financial Economics, 146 (2022), 1097–1119.CrossRefGoogle Scholar
Putnins, T. “Market Manipulation:A Survey.” Journal of Economic Surveys, 26 (2012), 952–967.CrossRefGoogle Scholar
Rambachan, A., and Roth, J.. “A More Credible Approach to Parallel Trends.” Review of Economic Studies, 90 (2023), 2555–2591.CrossRefGoogle Scholar
Scheinkman, J., and Xiong, W.. “Overconfidence and Speculative Bubbles.” Journal of Political Economy, 111 (2003), 1183–1219.CrossRefGoogle Scholar
Shifflett, S., and Vigna, P.. “Traders Are Talking Up Cryptocurrencies, then Dumping Them, Costing Others Millions.” Wall Street Journal, Aug. 5, 2018 (2018).Google Scholar
Snider, C., and Youle, T..“Does the LIBOR Reflect Banks’ Borrowing Costs?” Working Paper, available at https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1569603 (2010).Google Scholar
Williams-Grut, O. ““Market Manipulation 101″: “Wolf of Wall Street”-Style “Pump and Dump” Scams Plague Cryptocurrency Markets.” Business Insider, Nov. 14, 2017 (2017). https://www.businessinsider.com/ico-cryptocurrency-pump-and-dump-telegram-2017-11Google Scholar
Xu, J., and Livshits, B.. “The Anatomy of a Cryptocurrency Pump-and-Dump Scheme.” 28th USENIX Security Symposium (USENIX Security 19) (2019), 1609–1625.Google Scholar
Supplementary material: File

Li et al. supplementary material

Li et al. supplementary material
Download Li et al. supplementary material(File)
File 2.4 MB