It’s no secret crypto prices have been languishing lately.
But even in this market, there was still space for a $74 million pump and dump scam to play out within the top 100 this week.
If you read my “why are crypto prices falling?” feature, you’ll know that pump and dump scams are extremely common in crypto.
And the better crypto is doing the more pump and dump scams you’re likely to see popping up.
Which is why this week’s Matic Network pump and dump is a little unusual. There isn’t exactly a lot of euphoria in crypto right now.
However, the Matic scam has taken in a lot of people, and you can be certain scams like it will take in many more over the coming years. So That’s why we’re looking into it this week.
I’ll show you how it transpired and give you some tips on how to avoid finding yourself at the losing end of a pump and dump scam in the future.
But it’s not all bad news this week.
We’ve also seen another major player tuning into the power of blockchain. This time it’s Nike, with its CryptoKicks platform.
So let’s get started.
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Matic Network – a double-dipping pump and dump
Matic’s initial exchange offering (IEO) drew a huge amount of attention early in 2019.
And if you’re not sure what an IEO is, don’t worry, you’re not alone.
An IEO is basically just an Initial Coin offering (ICO) done through a crypto exchange. In this case, Binance.
And if you don’t know what an ICO is, well, it’s probably about time I wrote an explainer on the whole ICO, IEO, STO thing. But that’s a topic for another day.
For now let’s just say that an IEO is a way for a new crypto project to allow people to invest in it – without them having to trust the project itself too much.
During the ICO craze of 2017 and 2018 a lot of people got hacked or scammed by dodgy companies creating ICOs. Or even legitimate companies that ended up getting their own ICO hacked.
The IEO was a solution to this problem.
A reputable exchange would host the ICO and do all the heavy lifting and even a lot of the marketing.
Investors were better off because they already knew and trusted the exchange.
And the projects were better off because the exchange took care of all of the Know Your Customer (KYC) details and other technical and legal headaches… for a fee, of course.
Matic Network’s IEO took place in April 2019. And it was held on Binance – the biggest and arguably most trusted exchange in the world.
At the time Matic Network was pretty hyped up. The main idea behind Matic Network is that it’s a scaling solution for Ethereum.
If you were around in the 2017 days, you might remember OmiseGo. It was a much hyped crypto aiming to solve the scaling problem with something called “plasma”.
OmiseGo went stratospheric over the course of a few weeks when Ethereum’s version of Bill Gates (Vitalik Buterin) was photographed with an OmiseGo sticker on his laptop.
He was an adviser on the OmiseGo project and has said some very nice things about them publicly. For instance, here’s a tweet from him about OmiseGo in December 2017:
OmiseGo’s main claim to fame was a scaling solution using plasma, as well as a proof of stake (POS) consensus.
(If you want to know more about POS and why investors like it, you can read my Tezos and Coinbase staking article.)
Unfortunately, OmiseGo made some very big promises and then failed to deliver on those promises. So it has since lost its sparkle. In fact, it’s now one of the most hated projects out there.
People really don’t like it when you overpromise and then under deliver.
So when you basically promise the world – a scaling solution for Ethereum and a partnership with McDonald’s, no less – and then deliver absolutely nothing… well, you end up like OmiseGo today.
You can see how it all played out in OmiseGo’s lifetime price chart.
Fast forward a couple of years and we have Matic Network.
What is Matic Network’s stand out feature?
According to Matic Network’s whitepaper:
“Matic Network aims to solve the problems faced by the blockchain ecosystem through building a decentralized platform using an adapted version of Plasma framework.”
Now, of course both OmiseGo and Matic Network do more than just offer Ethereum scaling solutions and POS. I’m oversimplifying here for the sake of brevity.
But scaling through plasma and POS are at the core of what both these projects promise.
And like many similar projects, it seems that once Ethereum really gets going with Ethereum 2.0 they will be rendered obsolete.
But back to the topic at hand.
Matic Network was one of the first really well-known IEOs. And people got very excited about it.
The IEO took place on the 25th of April 2019.
They got even more excited as it climbed a staggering 1,493% in just over four and a half weeks.
Imagine making sixteen times your money back in just over one month…
And then imagine seeing its value fall off a cliff.
In just under two days, Matic Network lost 50% of its price.
You can see the movements on the chart below.
True, IEO investors were still nicely up. But many people who’d jumped in as the hype train left the station were left with empty hands.
But this is to be expected with an ICO/IEO. People get in at a low price, and if the market takes an interest in the project, they can make a killing in a very short space of time.
It’s par for the course.
However, it doesn’t usually happen twice.
Fast forward to August and Matic Network is back on a spree, thanks to a shoutout from Coinbase.
On the 5th of August 2019, Coinbase announced it was considering adding eight new coins, via its official blog.
- And… Matic Network
Matic Network jumped 60% in less than 24 hours on the back of that announcement. And this time, after a little hiccup, it maintained its price.
Then came November, and one of the most shocking pump and dump scams we’ve seen in crypto for a very long time.
I realise I’m a bit chart heavy this week. But nothing tells the Matic Network pump and dump quite as well as this chart…
Matic Network climbed around 240% in just over two weeks. And then crashed 70% in less than one hour.
There was no hack. There was no bug in the code. There was no bad news of any kind. It was simply just a very well-orchestrated pump and dump.
With rumours flying around that Matic Network itself was behind the pump and dump, Binance’s CEO, CZ was forced to come out and defend the team publicly.
However, it was a bit of a coincidence that Matic Network itself had transferred 3% of its total supply to Binance in the 50 days leading up to the mega dump. (Source CCN.)
And the fact remains, no matter who carried it out, this was a pump and dump scam on a grand scale, and it caught a great many crypto investors out.
What can we learn from the Matic Network pump and dump scam?
In situations like this, it’s easy to play captain hindsight.
Looking back, it’s easy to spot the signs. But when you’re playing live, those signs really are not so obvious.
If they were, pump and dump scams wouldn’t be so common.
Now, if you want to know why pump and dump scams like this are rife in crypto, and how people carry them out, then check out my feature: why are crypto prices falling? The definitive guide.
I also have some good advice for avoiding common crypto scams and avoiding losing money when crypto prices go crazy in that piece, so definitely check it out.
But as to pump and dumps specifically, the main thing to watch out for is fairly simple: the price increasing for no apparent reason.
If the whole market is going up and one particular project is outperforming, this might not be such a big deal.
But, if the market is flat, or even down, and one small project is shooting up – with no apparent news. Then this should be cause for concern.
In Matic Network’s case, the signs were there. And people were even commenting on them at the time.
But that didn’t stop a lot of people losing a lot of money in the pump and dump.
And the problem is, once something starts pumping, the shills come out to play.
If you follow any crypto communities, you’ll probably notice a big increase in people talking about the merits of the pumping project.
But, remember, if there hasn’t been any significant news about that project to prompt the pump, there’s a good chance it’s going to dump.
And most of the time those shills don’t even realise they are merely the puppets of their pump and dump masters.
I mean, everyone gets excited when something they invested in shoots up in value. So it’s unfair to blame the shills (at least the unpaid ones, that is).
But it does pay to keep your wits about you, and to remain sceptical if one of your smaller cryptos is pumping for no apparent reason… even if it’s one you really believe in.
And aside from that, so long as you’re following the three golden rules of crypto, you should be okay.
Now, as it’s nearly Christmas, let’s end on some better news, shall we?
Nike to tokenize trainers on Ethereum
In terms of brand recognition, it doesn’t really get bigger than Nike.
And Nike, it seems, is set to put a core use case of crypto into action: proof of authenticity.
On the 10th of December 2019, Nike filed a patent to use Ethereum tokens to tokenize its trainers.
Basically what that means is each trainer registered on its CryptoKicks platform will also be represented by a unique digital token.
These tokens can be used to prove authenticity, do away with counterfeits and feed the huge marketplace for limited edition trainers.
It’s a great idea. And it’s one that’s been talked about by crypto communities for as long as I can remember.
It seems that now, major brands are starting to realise just how useful crypto could be for their businesses.
Let’s not forget – with it being Christmas and all – that, as I reported in November, Coca-Cola is moving its $21 billion-a-year supply chain onto blockchain.
You see, that fabled “adoption” is happening. It’s just you have to know where to look.
And when crypto once again becomes popular with the mainstream, people will talk about it as though it all happened overnight.
But we’ll know better.
Okay, that’s all for this week.
Thanks for reading.
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