Dutch regulator warns of crypto pump-and-dump risks ahead of MiCA
The Dutch Authority for Financial Markets (AFM) has warned of concerns about cryptocurrency pump-and-dump schemes ahead of upcoming regulation.
According to the official press release of the AFM, the markets in the Crypto-Assets Regulation (MiCA) will be implemented on December 30.
Under MiCA, market manipulation such as pump and dump will be expressly prohibited in the EU.
The AFM monitors and enforces the new regulations in the Netherlands.
Related: Kraken acquires Dutch brokerage BCM as part of European expansion
MiCA implications
The MCA aims to increase transparency and market integrity in the crypto sector by prohibiting fraudulent practices such as pump and dump.
“The Market in Crypto-Assets (MiCAR) is designed to enhance the maturity of the crypto sector and enhance investor protection. However, MCR does not eliminate all risks in the crypto sector.
In preparation for the MiCA, the AFM has examined a number of pump and dump schemes in recent months and intends to set a strict enforcement precedent once the MiCA becomes operational.
Related: One Trading Receives Dutch License, EU Crypto Futures
How pump and dump systems work
A pump and dump scheme is a technique used to artificially inflate the value of an asset such as a cryptocurrency by spreading misleading or inflated information on social media.
Advertisers promote a large amount of pump-and-dump technique by buying crypto assets at low prices and using promotional phrases to encourage public participation at high prices.
After the price has risen, the scheme's promoters sell (dispose of) the property, leaving investors with foreclosed properties, making huge profits.
AFM executive board member Hanzo van Beusekom said pump-and-dump methods in the crypto market “lose the confidence necessary to create the long-term potential of digital assets”.
Related: OKX Expands to Netherlands with New Crypto Exchange and Wallet
MCA risk of crypto consolidation
The AFM's compliance with the MiCA regulation coming from Europe is not surprising, but the regulatory framework could lead to an exodus of Web3 companies to the Middle East.
In an interview with Cointelegraph, Fedium CEO and founder Anastasija Plotnikova said that this could lead to crypto companies moving to the Middle East.
Plotnikova raised concerns about centralization, explaining that the regulation would “lead to a lot of consolidation” and make the Web3 industry more similar to traditional finance.
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