In its latest attempts to crack down on cryptocurrency market anomalies, the Department of Justice (DoJ) has initiated a criminal investigation into the possible manipulation of the prices of the popular cryptocurrencies like bitcoin, according to Bloomberg.
DoJ-CFTC Jointly Probing Price Rigging
For the investigation, the Department of Justice is reportedly working with the Commodity Futures Trading Commission (CFTC) that administers cryptocurrency futures trading. Though CFTC only regulates the derivatives market including those linked to cryptocurrencies, it can take action if there are irregularities observed in spot markets.
According to people familiar with the matter, the probe is focused on certain malpractices like spoofing and wash trading. Spoofing involves sending fake orders in bulk to create fictitious demand and supply which can lead the other participant into buying or selling at extreme prices, and then the fictitious orders are canceled once the desired price levels are hit. Wash trading involves a dicey trader acting on both buy and sell side to execute trades at his desired price, leading to other traders to believe that the those rigged price levels are correct.
Regulators also have other hurdles to take. Some of a cryptocurrency's features that aid the possibility of price manipulation include the unregulated nature of such virtual currencies and their marketplaces, their 24/7 non-stop trading, and trading on multiple exchanges spread across the globe and remain outside of the purview of a single regulator.
Between February 2017 and December 2017, bitcoin prices jumped from the levels of $1,000 to almost $20,000, which led to investors jumping on the cryptocurrency bandwagon. The high valuations also led to a big flood of new initial coin offerings (ICO) to hit the market, and lured people into buying things that they don’t really understand. Controlling such mass hysteria and developments of the virtual world remains a challenge for the authorities, as they attempt to do their best to safeguard the common man from losing their hard-earned money. The investigation is a major step in the direction. (See also, How to Identify Cryptocurrency and ICO Scams.)
Apart from the regulators, the industry is also taking necessary steps to maintain the sanctity of the new-age virtual currency markets. The Winklevoss twins, Cameron and Tyler, who run the Gemini Exchange platform, have hired Nasdaq to perform the necessary scrutiny of the virtual currency trading on their exchange. (See also, All about Gemini, the Winklevoss Bitcoin Exchange.)
Despite all the regulatory measures imposed on crypto trading by several countries across the globe, the high volatility in their valuations continues. A few nations, like China which accounts for a significant chunk of cryptocurrency activities, have banned cryptocurrency exchanges completely.
Bitcoin extended its declines on the news of the probe, and was trading at $7,402 down more than 6 percent over the past 24-hour period at the time of writing. It is now down by more than 20 percent since its monthly peak on May 6. (See also, What's a Cryptocurrency Exit Scam? How Do You Spot One?)