- Justice Dept. opens probe into illicit bitcoin trading
- CFTC joins to look after crypto futures
The Justice Department has launched a criminal probe in Bitcoin and digital currencies to look after illicit trading. This investigation team will look after traders if they are involved in manipulating bitcoin and other cryptocurrencies market price. The information comes from people close to the matter, as reported by Bloomberg.
The investigation is focused on illegal practices such as spoofing and faking trades to manipulate buying and selling of other traders. Federal prosecutors are working with Commodity Futures Trading Community, a financial regulator that looks after Bitcoin futures and derivatives linked to it.
Authorities involved in the investigation are concerned about the vulnerability of digital currencies from its exposure to fraud. This is due to multiple reasons –
- Skeptical notion on exchanges – Many believe that exchanges involved with cryptocurrencies pursue cheaters to manipulate the crypto price.
- Volatility – Rapid price swings could make a push in valuations
- Lack of regulations – Regulators could make bitcoin more suitable for trading. Avoiding wild price swings in the market.
- Increasing number of investors
This probe was followed by the flash drop of bitcoin price yesterday, where it dropped the price from $7900 to around $7600 mark in just 20 minutes. This marked a drop of around 3% in just an hour.
It was this same concern which prompted China to ban exchanges and nations including Japan and Philippines to regulate them. This led to falling of bitcoin price below $8000 this year.
From probe, Justice Department is looking for illicit tactics which mainly include spoofing and wash trading – forms of illegal trading that regulators have involved in eliminating from equities and futures markets.
In a Spoofing, a trader submits a spate of similar orders and cancel them once the price moves in the desired direction. Wash trading involves cheater trading with himself to create an illusion in the market about the rising demand that lures others to dive into.
Cryptocurrencies have begun accepting regulatory terms by involving Know Your Customer (KYC) and Anti-Money Laundering (AML) in many exchanges. It is time to see how a market which began with distrust in banking and government system will react to direct investigation from regulatory authorities.