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DoJ Probe to Examine Bitcoin Exchanges For Alleged Price Manipulation

Originally published on: BTCMANAGER
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May 24, 2018

The U.S. Department of Justice (DoJ) has been keeping an eye on the alluring volatility of the price of bitcoin, with reports emerging of a launch of criminal probe for price manipulation on exchanges.

Bloomberg reported May 24, 2018, the DoJ is not amused by bitcoin’s price swings, and is on the lookout for traders who dramatically influence the cryptocurrency market, which they state is “rife with misconduct.” The digital currencies under examination include bitcoin and ether.

The department has ordered for a thorough scrutinization of exchanges and traders, in a bid to find the origin of fraudulent market activities, such as “spoofing,” fake market orders, and other types of manipulation.

Federal prosecutors and representatives of the Commodity Futures Trading Commission (CFTC), an authority that oversees the cryptocurrency market, will lead the investigation.

U.S. DoJ Building. Source: gCaptain

According to authorities, fraud is possible due to a variety of reasons, including nascency of the market (which makes it easier to influence), lack of action on the exchanges’ behalf, and a lack of regulations.

The authorities note that despite these factors, the digital asset market remains lucrative as ever, and continues to attract institutional players such as banks and hedge funds, industry figures, celebrities, and even Wall Street loyalists.

Bloomberg’s Sources Echo Bitfinex’ed’s Warnings

The DoJ is explicitly looking into wash trading and market spoofing, types of fraudulent market activities which authorities took decades to eradicate from the futures and equities markets.

The risky ‘wash trading’ involves a person buying and selling assets to himself in a short time period, to effectively create an illusion of heightened market activity, attracting unsuspecting traders to dive in.

In contrast to this, spoofing is a relatively simple method and involves a trader to simply place a large buy/sell order of assets, and cancel the order once price moves closer to the desired direction.

According to Bloomberg’s sources, the DoJ is investigating the very same practices that cryptocurrency blogger and commentator Bitfinex’ed/BitCrypto’ed documented and scrutinized in 2017.

Effortless Manipulation

Undoubtedly, the limited regulatory scope makes the market a hotbed of fraud and scams, with several Initial Coin Offerings making away with millions of dollars in investors’ funds in 2018 alone.

Echoing the thought is John Griffin, a University of Texas finance professor, who has studied manipulation in cryptoasset markets:

“There’s very little monitoring of manipulative trading, spoofing and wash trading. It would be easy to spoof this market.”

The regulatory crackdowns are being felt by several cryptocurrency exchanges, who have in some cases, requested authorities to regulate them.

To this effect, digital asset exchanges Gemini and Coinbase have cautiously treaded the cryptocurrency sector, placing a high emphasis on regulatory and internal fraud control. Additionally, these exchanges selectively list coins, usually after an elaborate vetting process.

The Winklevoss brothers-owned Gemini partnered with Nasdaq Inc. in April 2018 to conduct surveillance of digital coins trading on their exchange, and have publically appealed for their counterparts to set up a self-regulating body.

Bitcoin is currently trading near $7,577 at the time of writing on the Bitstamp exchange, up one percent on May 24’s open. The digital currency hit a 42-day low of $7,267.24 on May 24.

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