BTC Price Manipulation Being Investigated
The United States’ Department of Justice has opened a criminal investigation into Bitcoin price manipulation by traders. Four anonymous sources who knew about this matter told the media that this criminal investigation is being run by federal prosecutors as well as the Commodity Futures Trading Commission (CFTC).
According to the sources, the investigation will look into how traders have possibly influenced cryptocurrency prices by using illegal methods such as wash trading and spoofing. The investigation is specifically targeted at Bitcoin and Ethereum at this point.
What is Wash Trading and Spoofing?
The whole process of wash trading and spoofing started when a trader – or a group of traders – going by the name of Spoofy began manipulating prices in the cryptocurrency market.
Wash trading is basically when a trader buys his own orders to create the impression that there market demand. This in turn attracts more buyers, which ends up pushing up the price of the cryptocurrency.
Spoofing is the act of putting in numerous high value orders and then cancelling them once prices move in the direction the trader wants them to go. What traders are essentially doing is flooding the market with false orders with the purpose of tricking other investors into either buying or selling cryptocurrencies.
This investigation, still in its early stages, is a part of the government’s ongoing efforts to stabilize the cryptocurrency industry and crack down on rampant illegal activities.
Reasons for Suspicion
Bitcoin’s – and to a lesser extent, Ethereum’s – meteoric rise in the last quarter of 2017 ended up attracting a large number of mom-and-pop investors. Authorities were concerned about how people have jumped into the cryptocurrency craze without really understanding the risks.
Added to this is the fact that cryptocurrency trading is currently scattered across dozens of different platforms across the world and not all of them are registered with government regulators such as the CFTC or the SEC. Additionally, some of the financial agencies don’t regulate the spot market – which is where the actual trading of coins takes place (rather than the futures associated with them).
According to a University of Texas professor of Finance who has studied price manipulation, John Griffin, there is currently very little monitoring of market manipulation in the cryptocurrency industry, so it would be quite easy to spoof the markets.
Which is why regulators have cracked down on the nascent industry – to protect consumer interests and bring some law and order into an otherwise unregulated industry.
The US Securities and Exchange Commission (SEC) had already launched multiple investigations into ICOs because of suspicions of scams prior to the launch of this probe.