Justice Department Opens Criminal Investigation For US Bitcoin Price Manipulation Scheme

As of May 24th, 2018, a new criminal probe was opened by the United States Justice Department in attempt to determine if illicit manipulation is altering the price of Bitcoin and other cryptocurrencies. This new investigation perpetuates the constant scrutiny that critics place on cryptocurrency, since four individuals with reliable details on this issue say that there is a high level of misconduct. These individuals have not been identified, per their request.

During this investigation, the department hopes to zero in on the illegal practices suggested in this community that can alter the prices for greater profit. Some of those practices include actions like spoofing or creating false orders within the market to convince other traders that the coins are worth more than they are. To help expose more information, federal prosecutors have teamed up with the Commodity Futures Trading Commission, which is a regulator that reviews the different byproducts attached to Bitcoin.

The biggest concern for authorities is how easily cryptocurrencies can be infiltrated and infected, which are just a few reasons that they are at risk for fraud. The worry that exchanges are constantly continually seeking out scammers and the constant price changes are what puts these funding projects so easy to sway.

In fact, this lack of regulations over the crypto community makes it potentially rewarding but ultimately, incredibly risky without the same rules as stocks and similar assets.

Bitcoin has been continually declining, especially after the reports from Bloomberg News that expose the 3% loss of $7,409 since before 10:00am London time. This decrease isn’t even the worst of it, because the last 20 days of the market have brought it down over 20%. With these changes, even China is pulling out of cryptocurrency exchanges, and is banning both Japan and the Philippines in their regulations. These changes have likely influenced the decrease in value below $8,000 this year.

Somehow, despite the many changes and risks involved with cryptocurrency, digital coins are still a popular trend in the investment world, and those loyal to the industry have not dwindled. They also are still bringing in additional endorsements from celebrities.

Are Traders Colluding for Better Profits?

All of the different strategies that the Justice Department are researching, like spoofing and wash trading, are ways that investors try to cheat the system. The regulators in the industry have already been trying to eliminate these problems from futures and equities markets.

When someone uses spoofing, a trader would put in multiple orders at once to motivate pricing, but immediately withdraws them when the market moves in a more lucrative way. With wash trading, the user trades within their own blockchain to make the market look more profitable.

In the probing of Bitcoin and Ether, the four individuals who supplied the anonymous information said that coins prosecutors are examining the platforms. Unfortunately, no representative from the Justice department was willing to comment on the matter, and neither were CFTC officials.

Even though this research is only at the beginning of what they hope is unveiled, sources say that this attack on the cryptocurrency industry is the most recent action taken by former U.S. supporters. However, the attraction of the coin value, which rose to 20 times the original value within 2017, has greatly enticed the everyday consumer. Regulators fear that this substantial rise in value is misleading for inexperienced investors, especially if they are unaware of the risks.

Being a Target for Fraud

According to John Griffin, who works at the University of Texas as a finance professor and has studied manipulative markets, the minimal monitoring of the industry makes it more risky and prone to fraud.

He said “There’s very little monitoring of manipulative trading, spoofing, and wash trading. It would be easy to spoof this market.” There are even some exchanges that see this risk and believe that the warnings to coin buyers can lead them away from their platforms.

A recent request for surveillance was issued to Nasdaq Inc. last month from the Winklevoss twins, who most people remember from their profits in Facebook. The monitoring is meant to watch the digital coins on their exchange, which is called Gemini Trust Co. In their discoveries, they’ve been encouraging various trading platforms to come together in effort to self-regulate the industry.

Unfortunately, despite all of these efforts, there are many people in the market that still claim that manipulation is widespread. In fact, a source reported actions taken by a trader or group called “Spoofy” that may have initiated $1 million in orders without following through, which occurred just last month in another attempt of spoofing.

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