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There are several communities that allow anybody take part in their "movements". They say, for example, that at 7pm GMT they will announce an altcoin name and people would rapidly buy this coin on a specified early exchange (say, Bittrex).

When it's time to go, they disclose the coin name and people participating start to buy it. In consequence, the price of this coin rapidly rise. And after some short period of time it does down. Therefore, those who managed to buy it early and sell it in time, get profits.

These communities often call it as "Pump".

I read on Wikipedia about Pump & Dump scheme. It's illegal on security market (as I understand). Although, in my opinion these communities do not really do Pump & Dump as described on Wikipedia (from my point of view) as they do not make "false and misleading positive statements" about pumped coins.

The only thing that looks like described on Wikipedia scheme (again in my opinion) is that admins of some of such communities ask other participants to "promote" pumping coins on different chats/forums.

My questions are: 1) Do organizers (admins) of such communities do illegal things? 2) Do participants do illegal things when they: a) "promote" coin b) do not promote coin and just participate 3) What are consequences for those who could be determined as the one who do illegal things?

  • Because this is a legal question, I recommend asking it on law.stackexchange.com instead of here. – Jestin Oct 13 '17 at 15:36
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    Whether it's legal or not, it's a zero-sum game. To retell an old joke: what's the difference between an ICO trader and a large cheese pizza? A large cheese pizza can feed a family of four. – Nick ODell Oct 13 '17 at 16:18
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Legality depends largely on jurisdiction, and you didn't specify one. In addition, the regulation of cryptocurrencies is constantly in flux, and even in a given jurisdiction it's difficult to say which laws apply to them and which don't. It also may be in question whether fiat money is involved, or are these scammers selling their altcoins for bitcoin.

As far as I'm concerned, this looks like it is illegal, or at the very least should be. Whether it actually is, is impossible for me to say. If you want a more definitive answer, I recommend consulting a lawyer in the jurisdiction you are concerned with.

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Therefore, those who managed to buy it early and sell it in time, get profits.

Actually, they don't. For three reasons:

  1. To execute a pump & dump, you have to keep buying even after the price has risen above the price it would have if you were not buying. That means you have to buy high. Buying high is not part of any profitable strategy I know of.

  2. For this to work, you have to push the price up a meaningful amount. That means you have to keep buying high. While you're doing that, others will see the sudden inflow with no change in the fundamentals as a great selling opportunity, that is, they know there are pump & dumps. So you to get any meaningful increase in price, you will have to buy from every seller who also wants to profit from the increase in price.

  3. As soon as you start selling, the price will drop down very, very rapidly. Even if you're first, it's unlikely you could sell any significant quantity.

The more you move the price away from its natural price, the harder it is to move it any further and the more quickly and easily it will snap back when you stop. And while you have to do all the price manipulation yourself, you have to share the profits of the above normal price with everyone else who wants to sell.

There are many stories of people who went broke, in some cases losing billions, because they thought they could push a price up and then sell at the inflated price. It only works when you can mislead people into thinking the fundamentals have changed and that the price appreciation has a real basis other than just new money flowing in.

On the other hand, imagine if you knew the time that a bunch of suckers were going to buy an asset at a high price. You could buy that asset long before that time and place sell orders at a higher price. Of course, the suckers would be on to you too quickly, so you'd have to place some shills among the suckers who would claim that they made large profits. If you were dishonest enough, you might get some people to buy high over and over, each time hoping that next time they'll be one of the ones that makes money, with them never realizing that the game was rigged from the beginning.

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