United States DOJ Investigates Crypto Price Manipulation
The United States Department of Justice has announced that the agency has opened a criminal investigating into cryptocurrency price manipulation, including Bitcoin (BTC). Bloomberg has reported that the Department of Justice is working with the Commodities and Futures Trading Commission (CTFC) to identify illegal trading. One of the main focuses of the investigation is into what is known as ‘spoofing’. Spoofing is when cryptocurrency traders create an illusion in the marketplace by placing large orders on the books without actually placing the trades. In order to keep the trades from being placed, they are usually placed strategically above or below the market price of the cryptocurrency being traded. Spoofing can lead to the market moving towards or away from a specific price.
Having the ability to influence the price of a coin (price manipulation) can give traders the ability to illegally move the price in the direction that best suits their trading intentions. The investigation is also looking into wash trading which is when traders trade with themselves to give the market a false sense of demand. The DOJ’s investigation is only in the early stages, but so far Bitcoin and Ethereum (ETH) seem to be the main focus of the investigation. Emerging markets such as the cryptocurrency market can lead to inexperienced investors to blindly jumping in without understanding the potential risks involved with a mostly deregulated marketplace. Many cryptocurrency exchanges are still not even registered with the SEC or CFTC.
John Griffin, a finance professor at the University of Texas who studies price manipulation, stated that the limited oversight of the cryptocurrency markets makes it an ideal target for these types of attacks. “There’s very little monitoring of manipulative trading, spoofing and wash trading,” Griffin said. “It would be easy to spoof this market.” The fact the Department of Justice is stepping in may be seen as a distraction for Bitcoin and cryptocurrency investors but in the long run, should make the markets more transparent and safe for retail investors.