US investigators open criminal investigation into price manipulation of cryptocurrencies
The Department of Justice wants to know if traders have been using well-known, highly illegal, stock market tactics to move the price of Bitcoin and other digital currencies.
The US Justice Department has set its investigators to the task of deciding whether cryptocurrency traders are manipulating the price of Bitcoin and other digital currencies, reports Bloomberg - citing "four people familiar with the matter". Federal prosecutors will be working alongside staff of the Commodity Futures Trading Commission (CFTC), the regulator that has taken on the role of policing cryptocurrency related derivatives.
The investigation, its report says, is focused on several illegal way traders can move market prices, one of which is 'spoofing' the market with a high number of fake orders to prompt others into buying or selling. Another tactic, so-called 'Wash' trading, involves a trader dealing with themselves to create fake demand and draw others in. Both tactics are well-known, and highly policed, in equities trading.
Bloomberg says: "Authorities worry that virtual currencies are susceptible to fraud for multiple reasons: skepticism 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. "
As we reported earlier, Cryptocurrency price has fallen across the board today, apparently precipitated by the news.
Many parts of the UK cryptocurrency market have been pushing for regulation of the sector over the last few months, having coalesced into a trade body - CryptoUK. It believes that the wider public interest and institutional confidence in digital currencies can only be justified if it comes with tighter policing and standardized practices for exchanges and firms dealing in them. This echoes the general attitude of the US regulators, which have expressed about investment in cryptocurrency and ICOs by the wider public - who, though keen for the profits, may not be clear about the risks involved.
A Justice Department spokesman declined to comment for Bloomberg, with the CFTC officials also failing to respond.