The Crypto Pump and Dump

Does it surprise anyone that there are traders doing “pump and dump” in crypto?  It happens in stocks and other heavily regulated asset classes from time to time.

Since it’s happening in crypto, it doesn’t mean trading should end in crypto.  It just means that it needs to come out of the dark and be more transparent with regulation that forces transparency.  One of the things that will hurt the crypto industry is disenfranchising retail investors.

My lawyer friend Pat Daugherty of Foley and Lardner used to be an SEC regulator.  He is part of a group that leads a lunch and learn Fin Tech group at the University Club of Chicago.  In that group we don’t pick stocks, but we talk about issues in Industrial Fin Tech or Big Finance.   One of the things Pat has driven home over and over again is that the SEC cares deeply about the retail investor.  If the retail guy is getting taken, they are going to be tough and put some brakes on.  They don’t care about the benefit of innovation, or the other benefits.  If the little guy is getting crushed, they take action.

Over and over on this blog I have said that the crypto industry needs to police itself.  There is a model for this. Back in the early 1960’s, the futures industry had similar nefarious activities that gave it a black eye from time to time.  Leo Melamed set up self regulatory organizations that exist to this day that set standards and help police the industry to keep it between the lines.  I have seen some effort here but frankly it seems like it’s not strong enough.

Traders have to understand that making $100o bucks or so from a pump and dump is small potatoes. They could do that legally in any market if they’d take some risk and learn how to trade.