AFM Sounds Alarm on Crypto Pump-and-Dump Schemes

The Dutch Authority for the Financial Markets (AFM) warned last week about the dangers of cryptocurrency pump-and-dump schemes, highlighting upcoming regulations to address this form of market manipulation.

The Dutch Authority for the Financial Markets (AFM) has highlighted the dangers of cryptocurrency pump-and-dump schemes and upcoming regulations to address this form of market manipulation.

AFM Warns of Crypto Pump-and-Dump Schemes

The Dutch Authority for the Financial Markets (AFM) warned last week about the dangers of cryptocurrency pump-and-dump schemes, highlighting upcoming regulations to address this form of market manipulation.

“Crypto pump-and-dump is a form of market manipulation to which investors can potentially fall victim. Organizing and participating in a pump-and-dump scheme will be banned under the new Markets in Crypto-Assets Regulation (MiCAR),” the AFM said.

The AFM explained how pump-and-dump schemes typically operate, with organizers artificially inflating cryptocurrency prices by spreading misinformation, often through social media.

“Organizers typically select a cryptocurrency and a specific time to buy it. They spread the word on social media and other online platforms, encouraging others to join in. The goal is to drive up the price of the cryptocurrency,” the regulator described.

Organizers then sell at peak prices, leaving consumers with substantial losses when the price crashes.

“The organizers sell their holdings at a profit, and the price of the cryptocurrency crashes. Those who bought the cryptocurrency later, at a higher price, are left with substantial losses,” the AFM added.

Upcoming EU Crypto Regulation to Ban Pump-and-Dump Schemes

The AFM noted that the upcoming Markets in Crypto-Assets Regulation (MiCAR), effective from Dec. 30, will ban pump-and-dump schemes. The AFM will supervise and enforce this regulation.

“In preparation for its forthcoming supervision, the AFM investigated three cases of market manipulation by pump and dumps. We analyzed social media activity and price fluctuations, allowing us to identify a specific pattern,” the regulator detailed.

While MiCAR is expected to strengthen investor protections, the AFM cautioned that it will not eliminate all risks in the sector.

“The Markets in Crypto-Assets Regulation (MiCAR) is designed to elevate the crypto sector’s maturity and enhance investor protection. However, MiCAR will not eliminate all risks in the crypto sector,” the regulator stressed.

The AFM advised consumers to be well-informed before trading in cryptos and only invest money they can afford to lose, reiterating that crypto trading remains highly speculative.