It began with this: “PUMP XRP Feb 1st, 2021 @8.30 AM EST.”
In the darkest corners of Crypto Twitter, on the r/WallStreetBets Reddit page, across a myriad of Telegram chats and in Discord messaging rooms, thousands of inexperienced investors were being sold a promise: buy at this time and riches will follow.
XRP’s price had gradually surged over the course of the past week—from $0.27 on Monday to $0.40 on Saturday. As the weekend progressed, the altcoin was continuing to appreciate. The momentum helped contribute to a narrative that this cryptocurrency was going to boom, despite the fact that a legal fight between Ripple and the SEC is in a very nascent phase.
By then, there were a lot more inexperienced investors on r/WallStreetBets, which has seen its membership skyrocket from two million to 8 million since it began pushing GameStop stock last week, gaining huge mainstream attention while crippling big hedge funds, Quantum Economics founder Mati Greenspan noted in his daily newsletter on Feb. 1. “[I]t’s quite clear that many of the tourists clearly don’t know the difference between a short squeeze and a pump and dump,” he added.
Pump and dump schemes have been part and parcel of the cryptocurrency space for several years, but they’ve enjoyed a sudden uptick in popularity recently. After retail investors dealt short-selling hedge funds a bloody nose, euphoria has spread across social networks. With it, a sense of invincibility—misplaced confidence that, if everyone moves in tandem, a quick buck can be made.
A couple of hours before 8:30 a.m. ET struck on Monday, confidence was beginning to reach fever pitch. According to CoinMarketCap data, XRP hit $0.7448—helping the embattled asset regain its status as the world’s fourth-largest cryptocurrency in terms of market cap. The price wasn’t far off the $0.7680 seen in late November, before the SEC darkened Ripple’s doors. Some enthusiasts were beginning to confidently predict that XRP would manage to crack $1 for the first time since 2018.
But as whales began to offload their XRP, the warning signs began to show. Between 6:45 a.m. and 7:15 a.m., the coin’s value dropped from $0.74 to $0.57. There was an ever-so-slight recovery by the time of the big pumping event at 8:30 a.m., with XRP sitting perilously at $0.59.
What happened next would have been nothing short of disastrous for anyone who bought in at 8:.30 a.m.am ET on the dot. Within 15 minutes, XRP plummeted from $0.59 to $0.40—creating an immediate loss of 30%. In the hours that followed, prices fell further, as low as $0.38.
Anger and confusion
As the price tumbled before their very eyes, some naïve investors on Reddit were struggling to hide their shock. Some posts—including one entitled “Why the pump WILL work on Monday”—were taken down by moderators of the r/Ripple subreddit.
Some on Twitter said they had lost everything because they were using leverage, while another wrote: “How would I recover the amount of money I’ve lost on XRP?”
Reaction was more muted on the Telegram groups that had been aggressively promoting the 8:30 a.m. buy-in. One group has 103,030 subscribers, but comments are disabled. In a statement, the administrators of the “Buy & Hold XRP” group blamed the pump’s failure on system bottlenecks across key exchanges—and didn’t take any responsibility for the frenzy they had helped to whip up.
For some on social networks, the solution involves “buying the dip,” holding on to XRP in the hope of a reversal or moving on to other altcoins.
On the stock markets, pump and dumps are a form of securities fraud—but no such regulations exist in the crypto space. (That said, regulated exchanges do take action against accounts involved in suspicious activity.) While sudden 900% surges of DOGE may seem amusing at first glance, today’s events show that coordinated price action isn’t a laughing matter—and inexperienced consumers end up getting hurt.