Virtual Currency Trading: Leverage, Platform Risk, and Pump-and-Dump Promotions

Trading a virtual currency can involve more than its changing quoted price. Platform weaknesses, leveraged positions, and coordinated promotions can affect both the amount at risk and the ability to exit. This guide explains the CFTC's cautions about virtual-currency trading and pump-and-dump schemes. It helps readers recognize how online groups can manufacture apparent momentum and why a rapid rise is not evidence that a market or trading platform is reliable.

Adapted from public-domain educational material published by CFTC. Fynoptic has organized and edited the material and added introductory and practical guidance. Sources were reviewed on October 28, 2026; original publication dates, where available, are listed below.

Customer Advisory: Understand the Risks of Virtual Currency Trading

The U.S. Commodity Futures Trading Commission (CFTC) is issuing this customer advisory to inform the public of possible risks associated with investing or speculating in virtual currency spot or futures and options markets.

Virtual currency is a digital representation of value that functions as a medium of exchange, a unit of account, or a store of value, but it does not have legal tender status. Virtual currencies are sometimes exchanged for U.S. dollars or other currencies around the world, but they are not currently backed nor supported by any government or central bank. Their value is completely derived by market forces of supply and demand, and they are more volatile than traditional fiat currencies. Profits and losses related to this volatility are amplified in margined futures contracts.

For hedgers – those who own bitcoin or other virtual currencies and who are looking to protect themselves against potential losses or looking to buy virtual currency at some point in the future – futures contracts and options are intended to provide protection against this volatility. However, like all futures products, speculating in these markets should be considered a high-risk transaction.

What makes virtual currency risky?

Purchasing virtual currencies on the cash market – spending dollars to purchase Bitcoin for your personal wallet, for example – comes with a number of risks, including:

• Most cash markets are not regulated or supervised by a government agency;
• Platforms in the cash market may lack critical system safeguards, including customer protections;
• Volatile cash market price swings or flash crashes;
• Cash market manipulation;
• Cyber risks, such as hacking or phishing attempts; and/or
• Platforms selling from their own accounts and putting customers at an unfair disadvantage.

It’s also important to note that market changes that affect the cash market price of a virtual currency may ultimately affect the price of virtual currency futures and options.

When customers purchase a virtual currency-based futures contract, they may not be entitled to receive the actual virtual currency, depending on the particular contract.Under most futures contracts currently being offered, customers are buying the right to receive or pay the amount of an underlying commodity value in dollars at some point in the future. Such futures contracts are said to be “cash settled.” Customers will pay or receive (depending on which side of the contract they have taken – long or short) the dollar equivalent of the virtual currency based on an index or auction price specified in the contract. Thus, customers should inform themselves as to how the index or auction prices used to settle the contract are determined.

Entering into futures contracts through leveraged accounts can amplify the risks of trading the product.Typically, participants only fund futures contracts at a fraction of the underlying commodity price when using a margin account. This creates “leverage,” and leverage amplifies the underlying risk, making a change in the cash price even more significant. When prices move in the customers’ favor, leverage provides them with more profit for a relatively small investment. But, when markets go against customers’ positions, they will be forced to refill their margin accounts or close out their positions, and in the end may lose more than their initial investments.

Beware of related fraud

Virtual currencies are commonly targeted by hackers and criminals who commit fraud. There is no assurance of recourse if your virtual currency is stolen. Be careful how and where you store your virtual currency. The CFTC has received complaints about virtual currency exchange scams, as well as Ponzi and “pyramid” schemes.

If you decide to buy virtual currencies or derivatives based on them, remember these tips:

• If someone tries to sell you an investment in options or futures on virtual currencies, including Bitcoin, verify they are registered with the CFTC.
• Remember—much of the virtual currency cash market operates through Internet-based trading platforms that may be unregulated and unsupervised.
• Do not invest in products or strategies you do not understand.
• Be sure you understand the risks and how the product can lose money, as well as the likelihood of loss. Only speculate with money you can afford to lose.
• There is no such thing as a guaranteed investment or trading strategy. If someone tells you there is no risk of losing money, do not invest.
• Investors should conduct extensive research into the legitimacy of virtual currency platforms and digital wallets before providing credit card information, wiring money, or offering sensitive personal information.
• The SEC has also warned that some token sales or initial coin offerings (ICOs) can be used to improperly entice investors with promises of high returns.¹

If you believe you may have been the victim of fraud, or to report suspicious activity, contact us at 866.366.2382 or visit CFTC.gov/Complaint.

1 See https://www.sec.gov/oiea/investor-alerts-and-bulletins/ib_coinofferings.

The CFTC has provided this information as a service to investors. It is neither a legal interpretation nor a statement of CFTC policy. If you have questions concerning the meaning or application of a particular law or rule, consult an attorney.

Customer Advisory: Beware Virtual Currency Pump-and-Dump Schemes

The U.S. Commodity Futures Trading Commission (CFTC) is advising customers to avoid pump-and-dump schemes that can occur in thinly traded or new “alternative” virtual currencies and digital coins or tokens. Customers should not purchase virtual currencies, digital coins, or tokens based on social media tips or sudden price spikes. Thoroughly research virtual currencies, digital coins, tokens, and the companies or entities behind them in order to separate hype from facts.

Pump-and-dump schemes have been around long before virtual currencies and digital tokens. Historically, they were the domain of “boiler room” frauds that aggressively peddled penny stocks by falsely promising the companies were on the verge of major breakthroughs, releasing groundbreaking products, or merging with blue chip competitors. As demand in the thinly traded companies grew, the share prices would rise. When the prices reached a certain point, the boiler rooms would dump their remaining shares on the open market, the prices would crash, and investors were left holding nearly worthless stock.

Old Scam, New Technology

The same basic fraud is now occurring using little known virtual currencies and digital coins or tokens, but thanks to mobile messaging apps or Internet message boards, today’s pump-and-dumpers don’t need a boiler room, they organize anonymously and hype the currencies and tokens using social media.

Some of these pump-and-dump groups and chat rooms contain thousands of members. The members subscribe to the group and follow the conversations as they indicate when the next pump-and-dump will occur. On the day of the scam, the organizer counts down the buy signal:

“15 mins left before the pump! Get ready to buy”

“5 minutes till pump, next message will be the coin! Tweet about us and send everyone the link to telegram (sic) for outsiders to see what we are pumping so they can get in on the action too!! lets (sic) take it to the MOON!!!!!”

The next post announces the coin that will be bid up, followed by the exchange platform where the pump will take place.

Some pump and dumps use false news reports, typically about a famous high-tech business leader or investor who plans to pour millions of dollars into a small, lesser known virtual currency or coin. Other fake news stories have featured major retailers, banks, or credit card companies, announcing plans to partner with one virtual currency or another. Links to the phony stories are also accompanied by posts that create false urgency and tell readers to buy now.

Once the pump begins, it can be over in a matter of minutes. In the example above, the buy and sell cycle was over in less than eight minutes. Commonly, it is the people pulling the strings who get out first making the most in the scheme, and leaving everyone else scrambling to sell before losing their investment.

These pump and dumps occur in the largely unregulated cash market for virtual currencies and digital tokens, and typically on platforms that offer a wide array of coin pairings for traders to buy and sell. While the scams have been around as long as the virtual currency markets themselves, the number of new virtual currency and digital coin traders has grown substantially, increasing the number of potential victims or unwitting perpetrators.

The CFTC has received complaints from customers who have lost money to pump-and-dump schemes. While its regulatory oversight authority over commodity cash markets is limited, the CFTC maintains general anti-fraud and manipulation enforcement authority over virtual currency cash markets as a commodity in interstate commerce. In addition, some of the coin exchanges are taking measures to identify and block accounts that participate in pump-and-dump activities.

Protect Yourself

The best protection for customers is to only purchase alternative virtual currencies, digital coins, or tokens that have been thoroughly researched. Remember:

• Don’t purchase digital coins or tokens because of a single tip, especially if it comes over social media.
• Don’t believe ads or websites that promise quick wealth by investing in certain digital coins or tokens.
• Do not participate in pump-and-dump trades; market manipulation is against the law and many participants end up losing money.
• There is no such thing as a guaranteed investment or trading strategy. If someone tells you there is no risk of losing money, do not invest.

This article was prepared by the Commodity Futures Trading Commission’s Office of Customer Education and Outreach. The article is provided for general informational purposes only and does not provide legal or investment advice to any individual or entity. Please consult with your own legal adviser before taking any action based on this information.

Putting this into practice

Determine whether you are buying the asset, entering a derivative, or borrowing to increase exposure. Review custody and withdrawal terms separately from price claims. Treat messages urging a coordinated purchase at a specific time as a reason to investigate manipulation, especially when promoters may sell into the demand they create.

Sources and further reading

• Customer Advisory: Understand the Risks of Virtual Currency Trading — CFTC
• Customer Advisory: Beware Virtual Currency Pump-and-Dump Schemes — CFTC