December 2, 2021

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GameStop FOMO Inspires a New Wave of Crypto Pump-and-Dumps

After the California Gold Rush, in 1870, two Kentucky swindlers whipped up a scheme to prey on thirsty financiers’ FOMO. They invented a diamond field out West. Investors sunk millions in today’s money into the scheme. All of it, of course, was for naught—a cautionary tale about believing anyone who claims they have a surefire plan to get rich quick.

A hundred and fifty years later, a new generation of amateur investors is equally desperate not to miss the next big thing in the finance world. After watching the great GameStop stock boom play out on sites like Reddit and Discord this winter, hundreds of thousands of hopefuls are joining Discord groups that promise big earnings from manipulating the crypto market—also known as crypto pump-and-dumps. Step 1: Buy in early, when the coin is low. Step 2: Convince other people to join you—the more, the merrier, the bigger the potential gains as the price of the coin goes up. Step 3: Sell out before the price tanks. Get the timing right, these groups promise, and you come out a winner (and richer). Losers are left holding the bag.

Crypto pumps have been on the rise for a few years now, thanks in part to the relative ease of making and marketing a new digital coin. In 2018, the Wall Street Journal identified 175 “pump” initiatives, moving over $825 million through 121 different crypto coins, most of them organized on Discord and Telegram. Since then, experts say, it’s only gotten bigger. Trade volume on cryptocurrency exchanges is surging, particularly with lesser-known coins that have no fundamental value outside of investing.

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Originally a gaming-centric chat app, Discord has lately developed a strong culture of finance-centric servers. The app attracted tons of attention for its role in the WallStreetBets campaign to boost GameStop this January, when the meme stock rocketed from $20 to $347 in a matter of days. Later analysis attributed much of the spike to huge firms, rather than retail investors, but the spirit of the thing got people thinking: If they were in the right Discord server at the right time, maybe they could earn a buck. WallStreetBets users turned to Dogecoin next. They thought it would be funny, a good meme, to pump up the outdated and irrelevant cryptocurrency. And it worked. Doge spiked from $0.008 in late January to $0.68 on Wednesday.

According to moderators on four pump servers, a crop of new servers and social media “pump” accounts sprang up around the same time, with at least a dozen ripping off WallStreetBets’ name or logo. These accounts are not associated with the WallStreetBets subreddit or official Discord, according to a WallStreetBets moderator. (WallStreetBets only recently allowed discussions around crypto, but they are limited to Bitcoin, Ethereum, and Doge.) They are, however, cashing in on the WallStreetBets hype, advertising target gains of up to 500 percent. One of the servers has 83,000 members.

“Many young adults and others all of a sudden became extremely interested in stocks and investing, and this later also gave the crypto community and the cryptocurrencies a huge boost in popularity,” says one Discord user who goes by Alejandro. Alejandro was invited to his first crypto pump server in early February, during the GameStop hype. After making what he calls “a good profit,” 170 percent of his initial investment, Alejandro created his own group, FairPlay Crypto Pumps. It now has 10,500 members, who tune in every couple of days for a new “pump signal,” a server-wide message announcing which coin they’re pumping when. The gains, he says, comes from people who are not in the Discord. “This principle is called FOMO (fear of missing out),” he says. “Once outsiders see a sudden rise in an unexpected coin, they will buy shares. Meanwhile, the members of my group will sell their shares to the outsiders for a good chunk of profit.”

Discord is a perfect vehicle for these pumps, as a semi-public forum that allows users to advertise servers broadly, ping users about coordinated buy-ins, and discuss strategy. I’m a longtime Discord user, and anecdotally I’ve seen an enormous uptick in activity. Between early April and May, I received 47 invitations to join crypto pump groups over Discord. Eight of the groups have more than 20,000 members; the largest has over 80,000. Several of these servers’ moderators say they pay people—whom they call “advertisers”—to spam Discord users with invitations, sometimes including crypto giveaways.