The US Justice Department has reportedly opened a criminal probe into potential market manipulation of bitcoin prices, according to a Bloomberg report.
Federal prosecutors, Bloomberg adds, are working with the Commodity Futures Trading Commission (CFTC), a financial regulator, on the investigation. Notably, the CFTC is a derivatives watchdog that doesn’t regulate markets in which actual cryptocurrencies are traded. Nevertheless, it has the authority to act if it spots fraud.
The investigation is said to focus on “spoofing” — where false orders are placed on exchanges and then withdrawn to manipulate prices — in an attempt to lure other people into buying or selling and “wash trading,” where market participants trade with themselves to create the illusion of market activity.
The investigation, according to the unnamed sources, is still in its early stages and is focusing on illegal practices that can influence prices.
Cryptocurrency trading is fragmented on dozens of platforms across the globe, and many aren’t registered with the CFTC or SEC. As a derivatives watchdog, the CFTC doesn’t regulate what’s known as the spot market for digital tokens — which is the trading of actual coins rather than futures linked to them. But if the agency finds fraud in spot markets, it does have authority to impose sanctions.
Various cryptocurrency enthusiasts have long believed bitcoin’s price is actively being manipulated.
The price of bitcoin fell on the news to $7,339, and was down more than 6 percent, according to bitcoin exchange Coinbase.
Volatility in the cryptocurrency market has led to scrutiny from authorities around the world, who are scrambling to figure out ways to clamp down on speculative trading and illegal activities.
The cryptocurrency’s bearish period has notably seen it various odd patterns, which some critics claim to be proof of price manipulation. Last year, a blogger known as Bitfinex’ed documented the actions of “Spoofy,” a single entity the blogger claims is dominating bitcoin’s price.
According to his work, Spoofy was a trader or group of traders that often placed orders of $1 million or more, without actually executing them. Its goal was to trick other traders and force the cryptocurrency’s price to go in the direction it wanted it to go.
As for other cryptocurrencies, it’s well-known various groups organize “pump and dump” schemes to manipulate their prices, especially when it comes to small-cap cryptos. As covered, last month a group of cryptocurrency influencers were reported to the FBI and the US Securities and Exchange Commission (SEC) for orchestrating these schemes.