Bots and Whales – Anatomy of a Pump and Dump

Conor Maloney

January 26, 2019

The cryptocurrency market is a turbulent place, with accusations of widespread market manipulation coming from mainstream media, government regulators, and crypto traders themselves.

Interesting fact about those accusations –  they’re true. The market is manipulated, and using methods that are totally illegal when applied to the regulated stock market.

Trading Bots and Whales

One of the main manipulating influences in the market is trading bots.

The crypto market is still largely unregulated, even in areas with otherwise strict financial regulation such as the US, South Korea, and Japan, although multiple regulators are implementing legislation to deal with the unwanted activity in crypto trading.

Speaking to The Wall Street Journal, CoinList co-founder and president Andy Bromberg stated that the cryptocurrency market is rife with illicit bot trading and market manipulation.

“This sort of activity is rampant in the market right now.”


Spoofing is the word used to describe one of the methods by which bots manipulate the market on a large scale. By placing large amounts of buy orders in quick succession, botnets can create artificial demand – other traders (and even bots) will see that there are more buy orders racking up, and conclude that demand has increased, making the currency being traded more valuable.

Bots can be instructed to suddenly cancel orders before they go through, meaning they don’t even have to spend money to manipulate the price. As it rises, the botmasters can sell their accumulated funds at an inflated price – the method can also be used to the opposite effect, with sell orders pushing the price down to facilitate cheap accumulation.

Of course, the bots do need a large amount of money to place so many orders in the first place, meaning that they are often controlled by funds or whales who also have a number of other tricks up their sleeves.

Anatomy of a Pump and Dump

Pump and dumps are similar in the sense that artificial demand is being created – this time, the method is a little more public. Influencers are hired to spread the word that a certain currency is doing well, or has promising partnerships being announced – market-moving news and social media posts are released in quick succession, creating hype.

The hype leads people to invest, inflating the price of the currency which the pump and dump orchestrators will have already accumulated. Then they sell a huge amount off, creating a trend reversal which causes the currency to lose value and typically revert back to the original price or even lower, burning all the investors who bought the hype.

Here are the different stages of a typical pump and dump according to Crypto Frenzy:

1) Position Building: accumulating vast amounts of a currency, often one with a low market cap that is easier to manipulate. Position building is contingent on part two:

2) Suppressing prices: After accumulating enough to spoof the market, spoofing and then canceling sell orders drives the price even lower. At this stage, the market is already being manipulated in such a way that could be capitalized on, but pump and dumps take things much further than traditional spoofing.

3) Test Pump: A test pump is implemented through spoofing and sometimes social media hype to slightly increase the price, driving out weak hands looking to sell early and leaving only people who want to ride the currency to the moon and won’t sell easily, giving the whales more complete control.

4) Actual Pump: This is where the price inflation tactics begin in earnest, taking prices to the top.

5) Shakeouts: A sudden forced price reaction tanks prices and shakes out more sellers.

6) Re-allocation and distribution: A carefully coordinated series of buys and sells on the part of the whale facilitates rich market activity and creates the impression of a healthy price increase.

7) Exiting – The Dump: This is where the whales leave the other traders holding the bill for their very expensive exercise in market manipulation. This is usually done in bits and pieces – it’s difficult to make a major exit without deflating the price, but this will begin during the reallocation phase and gradually continue until the whale has exited at the top or the price has crashed.

These tactics are illegal under SEC regulations when used to trade FOREX currencies or stock – but in the crypto market we have yet to see regulations that protect investors from such activity, and indeed, there are those in the space who would prefer manipulation over government regulation in any case.