The Netherlands AFM has issued a warning about cryptocurrency market manipulation, focusing on pump and dump schemes ahead of the implementation of MiCA in December.
The Netherlands Authority for the Financial Markets (AFM) has warned of the risks of cryptocurrency pump and dump schemes ahead of upcoming regulatory measures.
According to an official AFM press release, the Markets in Crypto Assets Authority (MiCA) will come into effect on December 12.
Under MiCA, the EU will explicitly prohibit market manipulation such as pumping up stock prices and then selling them off.
The Netherlands Financial Services Authority will monitor and enforce the new regulations in the Netherlands.
MiCA Meaning
MiCA aims to increase transparency and market integrity in the cryptocurrency space by prohibiting manipulative practices such as pump and dumping.
“The Market for Crypto-Asset Regulation (MiCAR) aims to increase the maturity of the crypto industry and strengthen investor protection. However, MiCAR will not eliminate all risks in the crypto industry.”
In preparation for the implementation of MiCA, the AFM has investigated several cases of price manipulation in recent months and intends to set a precedent for strict enforcement once MiCA comes into effect.
How pump-and-dump scams work
Pump and dump is a strategy to artificially inflate the price of an asset, such as cryptocurrencies, by spreading misleading or exaggerated information, often via social media.
The initiators purchase large quantities of price-gouging crypto assets at low prices and then use promotional phrases to hype them up, encouraging public participation at even higher prices.
Once the price is bid up, the organizers of the scheme then sell off their holdings (dumping), making a tidy profit at the expense of the value of investors’ assets.
Hanzo van Beusekom, a member of the AFM’s executive board, said pump and dump “undermines trust in the cryptocurrency markets,” which is crucial to the long-term potential of digital assets.
The Threat of MiCA Cryptocurrency Integration
The AFM’s alignment with Europe’s upcoming MiCA regulations is unsurprising, but the regulatory framework could lead to a massive exodus of Web3 companies to the Middle East.
Fideum CEO and co-founder Anastasija Plotnikova told Cointelegraph that this could lead to cryptocurrency companies “relocating somewhere in the Middle East.”
Plotnikova raised concerns about centralization, explaining that the regulation will “lead to a lot of consolidation” and make the Web3 industry more similar to traditional finance.