What all cryptocurrency groups have in common

Posted: 20 March 2018 4:25 pm
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You can find layers, fees and inherent scam-like undertones even in reputable, friendly and 100% legal groups.

Cryptocurrency groups are a common feature of cryptocurrency markets. The general principle of all of them is that you pay an ongoing subscription, or a one-off admission fee, and in return get access to the group's communication channels, forums, websites and other material.

The following are a few of the different types of groups out there, which operate with varying degrees of scamminess and give varying rates of return:

  • Pump-and-dump groups. A group of people pool their efforts to drive up a coin's price and then sell it at the peak, leaving latecomers holding overpriced coins.
  • Mining pools. People pool computing power to mine coins more competitively than they could alone and then share the profits.
  • Trading pools. Any group where people get together, sometimes pooling funds to let a more experienced person use the money on their behalf, rob them or otherwise vary their returns.
  • ICO pools. People investigate ICOs together to cover more ground and to research ICOs more thoroughly and then try to negotiate bulk discounts with the token sellers if they like a project.

There are two characteristics that are relatively common across many of these groups.

  • Fees. There's often a cover charge for getting in. This is partly a way for organisers to make money, partly a way to keep numbers manageable by turning away the tire-kickers, and partly a way to align the community's goals.
  • Layers. Groups will frequently have inner layers and outer layers. For example, the outer layer might be free admission while the inner layers require payment, or the inner layer might just refer to one guy scamming everyone else.

Pump-and-dump groups

These groups artificially pump up the price then dump the coin for a profit. By pooling efforts, people can more easily manipulate market movements. These groups usually operate on Telegram channels or in the Discord chat program. Here, the organisers let users know which exchanges and coins are targeted and then give "pump" signals and "dump" signals. Pump means buying up a coin to increase the price, and dump means selling it as fast as possible.

This is easiest with relatively unknown low-liquidity coins, but with enough money, any coin can be pumped.

The use of groups serves two purposes. First, it allows people to pool their efforts to more easily affect coin prices. Second, it ensures a more ready supply of buyers. You can't always depend on the general public buying a coin just because the price spikes, especially if they're wary of pump-and-dump schemes, so many of the willing participants will often end up as victims.

This is where the layers come in. Different layers in chat groups will receive pump-and-dump signals at different times. The further from the inner circle, the later the signals arrive and the more likely one is to be left holding a supply of now-worthless coins that no one's buying.

  • The centre. This is often a small group of people whose goal is personal profit. They run the show and give the pump-and-dump signals to the other layers. They'll often start by "pre-pumping" a coin in the weeks, days and hours beforehand. Typically, the centre is only for a small group of people who know and trust each other.
  • The inner layers. People might pay fees to get closer to the centre and receive the signals earlier. The profits in this layer aren't as high as the profits in the centre, but can be much higher than the outer layers where most people are.
  • The outer layers. This is for the people who joined for free, paid small fees or paid large fees only to get tricked into thinking they were one of the inner layers. They get the signal last, so they think they're still "pumping" when the inner layers have actually started "dumping." Their job is to buy the dumped coins at massively inflated prices. When a brand new pump-and-dump group emerges, it's often just an established group looking for a new outer layer to suck up the losses.

Detailed anatomy of a pump-and-dump group.


Mining pools

These are fairly straightforward. People simply pool their hashing power together to more competitively mine more profitable cryptocurrencies instead of paddling in the shallower and more speculative end of the market.

It's usually quite transparent, with earnings being fairly distributed based on one's contribution minus any fees paid to the operator of the mining pool. However, they're not necessarily profitable for anyone except the largest contributors these days.

How is mining profitability determined?


Trading pools

These are groups where people pool their money with the aim of magnifying their returns, although the vast majority are probably Ponzi schemes. The legitimate ones might offer genuine trading advice from accredited advisers or simply be a group of people who get together to talk crypto and throw money at the things they think look good.

The characteristics of a Ponzi scheme.


ICO pools

Paradoxically, these are often the most legal and above-board of the bunch, while also being just as shady as pump-and-dump schemes in their own way.

ICOs usually consist of three main stages:

  • The first is the pre-sale, where tokens are sold in large numbers at massive discounts. This is usually only open to institutions, wealthy individuals and people who are sufficiently connected to get in on it.
  • The second is the public initial coin offering itself, which is being increasingly regulated and, in some cases, may only be open to accredited traders.
  • The third is open-market release, when the token gets listed on an exchange. This gives it a market price for the first time and lets main-street speculators start buying and selling it.

Much like pump-and-dump groups, the goal is often to let wealthy, connected individuals and institutional traders pick up cheap coins as soon as possible and then dump them on unwary retail speculators as soon as it hits the open market for an easy way to multiply their money. In the weeks before it arrives on the markets, buyers will often pump evangelise for the token before dumping profit-taking after it reaches the general public. Sometimes, buyers will also hold onto tokens after they hit the market if they think it's a promising long-term prospect.

ICO pump and dumps short-term speculation has become such a problem that many projects are now insisting on mandatory token lock-up periods after purchase or offering even sharper discounts to early buyers who willingly agree to lock up their tokens for a certain period of time. This might do little to deter some pre-sale buyers though. They can simply work this into their predictions or look for projects without any lock-up periods.

Functionally, many ICOs now work almost exactly like pump-and-dump schemes, with the inner circles being corporations and accredited traders, and the outer layer being the unwary general public. But unlike pump-and-dump groups, this is not only entirely legal but actively encouraged by current regulations. Current regulatory movements actively prohibit main-street traders from getting involved at any point before the open-market stage, ensuring that the wealthiest corporations and individuals will always be able to dump on the general public. Ironically, these regulations are intended to protect main-street speculators from the risks of ICOs.

ICO pools are a way for people to use collective bargaining to buy into ICOs at earlier stages and with larger discounts, with the aim of picking up larger eventual profits after a coin hits the market.

You can also find various layers within ICO pools in the form of membership tiers. The basic memberships might allow eventual access to any remaining pre-sale tokens that the group has managed to negotiate for, while more expensive VIP memberships might allow for priority access to these.

The main difference between ICO pools and pump-and-dump groups is that ICO pools will often operate as registered businesses, and they don't deliberately manipulate market prices (because that would be illegal-ish), preferring instead to choose projects carefully and to pick the ones that sound like they'd have the highest prices when they eventually hit the market. These can usually be evangelised and dumped most effectively.

Overall, retail traders and the most innovative projects will usually end up paying the highest price, literally and figuratively respectively.


Disclosure: At the time of writing, the author holds ETH, IOTA, ICX, VEN, XLM, BTC and NANO.

Disclaimer: This information should not be interpreted as an endorsement of cryptocurrency or any specific provider, service or offering. It is not a recommendation to trade. Cryptocurrencies are speculative, complex and involve significant risks – they are highly volatile and sensitive to secondary activity. Performance is unpredictable and past performance is no guarantee of future performance. Consider your own circumstances, and obtain your own advice, before relying on this information. You should also verify the nature of any product or service (including its legal status and relevant regulatory requirements) and consult the relevant Regulators' websites before making any decision. Finder, or the author, may have holdings in the cryptocurrencies discussed.

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