A new study reveals how social media promotion influences participation in cryptocurrency pump-and-dump schemes. These manipulative schemes artificially inflate a cryptocurrency's price before dumping the pumped tokens on unsuspecting investors. The research investigates the interplay between Twitter activity, trading volume, and price movements around such events.

Key Findings:

- Twitter effectively garners attention and attracts participants to planned pump-and-dump events. The study found a significant increase in tweets discussing the targeted cryptocurrency in the hours preceding the pump. This surge in Twitter activity correlated with rising prices.

- Many participants likely use Twitter to gain information about upcoming pump-and-dump schemes. However, Twitter-informed investors tend to exhibit delayed selling behavior compared to early insiders. This results in these late investors incurring substantial losses.

- Tweets directly promoting the pump schemes align closely with the manipulative strategy. But a large portion of indirect, non-pump-aware tweets also significantly influence prices during the dump phase. This inadvertent promotion sustains the scheme.

- On average, a 1% increase in cumulative pre-event tweets correlated with a 0.8% price gain. However, delayed selling due to Twitter-sourced information causes an eventual 1.6% loss.

The findings demonstrate social media's effectiveness in spreading awareness about planned cryptocurrency manipulations. While some users knowingly participate, many others unknowingly get lured into such schemes. Regulators could leverage the study's methodology to detect suspicious Twitter activity for protecting unwitting investors.

Overall, the research highlights the nuanced influence of social media promotion on cryptocurrency price distortions. It provides valuable insights into market manipulation risks in the digital finance era.