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 AFM said:

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 detailed how pump-and-dump schemes work, where organizers artificially inflate cryptocurrency prices by spreading misinformation, often through social media.

“The new Markets in Crypto-Assets Regulation (MiCAR), which enters into effect on 30 December 2024, will ban pump-and-dump schemes. The AFM will supervise and enforce this. 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 noted. Organizers sell at peak prices, leaving consumers with substantial losses when the price crashes.

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

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 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.

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