Dutch Regulator Warns of Crypto Pump-and-Dump Risks Ahead of MiCA
The Dutch Authority for the Financial Markets (AFM) has issued an indictment in no uncertain terms about the risk of pump-and-dump practices occurring in the cryptocurrency market. The warning comes into force ahead of the so-called Markets in Crypto-Assets Regulation, or MiCA, set to go into effect this December.
MiCA and Its Impact on Market Manipulation
New MiCA coming into force on 30 December will attempt to introduce more transparency, prevent market manipulation of the crypto space throughout the EU. For example, it will expressly outlaw practices such as a pump-and-dump scheme where the price of an asset is inflated and then sold at a profit, leaving other investors out of pocket.
The AFM, by the way, will continue to follow these manipulative operations closely to make sure the rules are indeed effectively applied in the Netherlands.
How Pump-and-Dump Schemes Work
Pump-and-dump schemes promise a quick rise in value in some cheap cryptocurrency through media social channels and often encourage the public to invest therein. The promoters who have beforehand purchased the digital asset at low prices sell their assets after the value is pumped up, and the price drops to leave the other investors with worthless investments.
AFM executive board member Hanzo van Beusekom pointed out that such schemes break the trust in the crypto market, which is of paramount importance for the long-term prosperity of digital assets.
Crypto Consolidation MiCA Threatens
While the MiCA regulation is targeted at investor protection and the integrity of the markets, there is a growing concern about its effects on the wider Web3 ecosystem. Industry experts also warn strict regulations could drive away cryptocurrency firms from Europe, with many likely to seek friendlier environments in the Middle East.
As Anastasija Plotnikova, the chief executive of Fideum explained, MiCA does pose a potential risk of centralization-the forcing of the Web3 industry to become like traditional finance, which kills innovation.
