Altcoin Pump-And-Dump Punishable by Law in South Korea

Virtual currencies are often associated with all kinds of negative terms, including scams, hacks and pump-and-dump schemes.  Especially the latter category is far more common in the world of virtual currencies than one might assume, as most of the “altcoins” are created by a group of developers looking to make a quick buck.  In all fairness, with over 4,000 virtual currencies in existence already, there is no need to create more.

The Ecosystem of Altcoin Pump-and-dump SchemesAltcoins

Bitcoin and other virtual currencies are a “Wild West” for fraudsters, imposters and people looking to steal your money.  Or that is what mainstream media wants the everyday consumer to believe at least, even though their story is not that far from the truth.  There is quite a lot of pumping-and-dumping going on in the virtual currency altcoin scene, as it has been for many years now.

Everybody knows that the Bitcoin price is one of the most volatile exchange rates to be found on the planet right now.  Supply and demand in a free market setting is cause for speculation and day trading, with plenty of traders looking to make quick profits.  But things are far worse in the altcoin industry, where prices can increase or decrease by a few hundred percent in mere minutes.

The main cause of concern regarding altcoins is the so-called “pump-and-dump” tactic.  Developers launch a new altcoin and get it hyped – or “promoted” if you will – to create buy pressure for the coins on exchanges.  Before you know it, a freshly launched altcoin with no use cases whatsoever, is one of the most popular traded virtual currencies of the day.

Similar to Bitcoin, nearly every altcoin in existence has a fairly low supply of total coins.  Because of the hype surrounding this coin, many traders are attracted to the idea of huge profits in the next 24-48 hours.  People start buying up the coins on exchanges and artificially create new price points, which will collapse at any point.  All it takes is one con owner to sell a mediocre amount of coins to create an avalanche of sell orders.

This is where the term “pump-and-dump” comes from, as there are trading groups active in the world of virtual currencies which do nothing more than pumping a newBank of Korea coin’s price.  Once a decent profit margin has been established, liquidating of these coins will occur on a large scale, dumping the price down to very low values.  Novice traders, who get caught in the middle of a pump-and-dump, can only watch in horror as their virtual currency wealth dwindles in front of them.

South Korea Cracks Down on Pump-and-Dump Schemes

To this very day, there is very little action to be taken by affected traders.  Virtual currencies such as Bitcoin are not protected by law, and there is no party to use as it is extremely difficult to find out who bought or sold coins.  Recovering losses is all but impossible, and traders can only hope to see a price reversal, or cut their losses before it is too late.

In South Korea, however, running an altcoin pump-and-dump scheme might not be as lucrative for much longer.  According to Chosun, the Bank of Korea will work closely together with law enforcement agencies to investigate and pinpoint pump-and-dump schemes involving virtual currencies.

“According to our sources, there are 676 altcoins, including bitcoin, listed on coinmarketcap.com.  However, only 309 of them have a market cap of USD$10,000, and others are almost worth nothing.  Furthermore, there are 550 altcoins that have extremely low daily trading volumes.”  

Source: Chosun

Images courtesy of Bank of Korea, Shutterstock, The Merkle