US Justice Department probes manipulation in bitcoin prices
May 29, 2018 11:50 am,
The investigation is focused on illegal practices that can influence prices — such as spoofing, or flooding the market with fake orders to trick other traders into buying or selling, said the people, who asked not to be identified because the review is private. Federal prosecutors are working with the Commodity Futures Trading Commission, a financial regulator that oversees derivatives tied to bitcoin, the people said.
Authorities worry that virtual currencies are susceptible to fraud for multiple reasons: skept that all exchanges are actively pursuing cheaters, wild price swings that could make it easy to push valuations around and a lack of regulations like the ones that govern stocks and other assets.
bitcoin extended its Thursday declines after Bloomberg News reported the investigation, and was down 3 percent to $7,409 as of 9:32 am London time. It’s down more than 20 percent since a May 4 peak.
Such concerns have prompted China to ban bitcoin and other cryptocurrency exchanges and nations including Japan and the Philippines to regulate them, contributing to a slump that has sent bitcoin below $8,000 this year. Still, digital coins continue to be a global investment craze, drawing legions of loyalists to industry conferences, generating celebrity endorsements and increasingly attracting the attention of Wall Street.
The illicit tactics that the Justice Department is looking into include spoofing and wash trading — forms of cheating that regulators have spent years trying to root out of futures and equities markets, the people said. In spoofing, a trader submits a spate of orders and then cancels them once prices move in the desired direction. Wash trades involve a cheater trading with herself to give a false impression of market demand that lures other to dive in too. Coins prosecutors are examining include bitcoin and Ether, the people said.
A Justice Department spokesman declined to comment and CFTC officials didn’t respond to requests for comment.
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The investigation, which the people said is in its early stages, is the US’s latest effort to crack down on an industry that was initially embraced by those who were distrustful of banks and government control over monetary policy.
But bitcoin’s meteoric rise — it surged to almost $20,000 in 2017 after starting the year below $1,000 — has been a lure for mom-and-pop investors. That’s prompted regulators to grow concerned that people are jumping into bitcoin and other cryptocurrencies without knowing the risks. For instance, the Securities and Exchange Commission has opened dozens of investigations into initial coin offerings, in which companies sell bitcoin digital tokens that can be redeemed for goods and services, due to suspicions that many are scams.