CME Group’s launch of its Bitcoin futures program came as an exciting development for many within the crypto community. The company’s program helps in the creation of a stable pricing system for Bitcoin and Bitcoin-related futures, something that the market has wanted for quite some time. The team remarked that they determine their pricing data based on information derived from four exchanges.
Bitstamp, Coinbase, itBit, and Kraken, four of the largest crypto exchanges on the web, were to be the main sources of data from which CME’s pricing module would draw its pricings and predictions. When the market moved, in theory, so would the price listed on the service’s website. The CME group had created a large buzz surrounding the release of the much-awaited service, and consequently drew international attention when it launched in December of 2017.
But the ingenuity of the company’s latest project drew the interest of more than just an excited crypto community. Rumors surrounding the exact nature of the company’s work brought the company under regulatory scrutiny by the US Commodity Futures Trading Commission, or the CFTC. This regulatory agency is tasked with supervising the trade and collection of commodity futures.
Though the regulatory community still questions the extent to which cryptocurrencies fit into the existing regulatory framework of the CFTC, or any financial regulation industry in the United States for that matter, it is clear that the recent move could have drastic implications for both the company and the larger trading community.
Cause For Investigation
There were accusations following the late 2017 launch of Bitcoin futures by CME that the platform was being used to illegitimately manipulate the price of Bitcoin futures, causing both profit for participating conspirators and danger for the general market. The move follows a trend by the CFTC of swiftly targeting schemers who seem to be using price manipulation to gain an edge on the new markets of BTC futures trading.
The investigation, in many ways, is believed to have been caused by a dispute between the CME Group and several of the crypto exchanges which they propositioned for information to build their BTC futures pricing. The CFTC claimed that they were upset that the organization did not have the permission of some exchanges to gain access to data which they claimed was shared. Most of the dispute between CME and the exchanges with which they cooperated came from the negotiating process which drafted the initial partnerships.
The Wall Street Journal reported that CME used a third-party, a British platform which operates its own trade platform. Likely because the agency handling the information has its own exchange, several of the crypto exchanges propositioned by CME refused to hand over their information. Consequently, this disagreement served as the impetus for an investigation into the dispute.
The CFTC continues to investigate futures pricing organizations and programs like the one created by CME Group. The Chief Executive of Kraken, Jesse Powell, remarked in an interview that the increased oversight serves to question both “the value and cost” of the index participation of companies offering pricing services.
The agency is taking a hard and serious approach to the regulation of companies suspected of manipulating the price of digital currencies like Bitcoin. Unnamed sources have come forward with information that the agency is cooperating with the Department of Justice in their continued investigatory efforts.
The DOJ opened their own investigation, unrelated to the CME Group investigation, into suspected price manipulation of both Bitcoin and Ethereum. The department suspects that traders might be manipulating prices using strategies such as spoofing or wash trading, both popular manipulation methods employed heavily within the realm of traditional currency trading and pricing.