The U.S. Department of Justice (DoJ) is investigating what it suspects is criminal activity in the manipulation of BTC and ETH prices. Bloomberg reported the beginning of the investigation yesterday and says that U.S. prosecutors and the Commodity Futures Trading Commission (CFTC) will look into how traders could have engineered prices by illegal activities like spoofing and wash trading.
What is spoofing?
Spoofing is when traders create a lot of orders and then cancel them and it has happened before in crypto markets. In one case, ‘persons unknown’ calling themselves ‘Spoofy’ allegedly placed a number of $1 million orders without following through. This ‘Spoofy’ also practised wash trading, which is when a trader buys their own orders, thus creating the illusion of market demand to attract more buyers.
Bloomberg reports that only BTC and ETH are being investigated, but the DoJ and CFTC are keeping quiet about the investigation for the moment. Sources like Bloomberg are just hearing rumours from people placed within these organisations, so for the moment, we have no more concrete information.
Fears about criminal activity
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.”
However, following the reporting by Bloomberg, BTC declined by 3%, which is to be expected in what is still a volatile market.
This new investigation comes hot on the heels of several others by the SEC and regulatory bodies in other countries. As a result, “Signs are emerging that some crypto exchanges realize the industry’s growth could be constrained if large swaths of investors conclude that trading platforms have a “buyer beware” approach to oversight,” says Bloomberg.