U.S. Opens Criminal Investigation into Bitcoin Price Manipulation

Closeup of digital asset -bitcoin. Gray background

The Department of Justice is ordering an investigation over allegations of price manipulation in cryptocurrencies, particularly Bitcoin and Ethereum.

There must have been a general perception among many that the wild fluctuations in the price of Bitcoin (BTC) could be the result of some kind of manipulation or being artificially orchestrated. The reality might come to light since an investigation is underway in the United States on this issue.

Ordered by the U.S. government’s Department of Justice (DOJ), this is going to be a criminal probe into whether or not Bitcoin price manipulation is driving the growth of the market.

Methods to Manipulate Not New

Both the people engaged in the trading of currencies and other instruments on exchanges and the ones responsible for regulating such trades fully understand the way some unscrupulous traders play with the market.

One method alleged to have been employed in the case of BTC is spoofing. In this, the fraudster places orders for huge quantities of the instrument, and seeing the price levels moving Northward, will cancel the orders and use the interim period to cash out at higher prices using some other accounts.

This is a common practice found in the traditional stock exchanges. The U.S. Securities and Exchange Commission keeps a close watch and swoops down on such traders and they get punished.

The other method suspected is known as wash trading. Here, again, the manipulation is done by the trader ending up buying his/her own Bitcoins or Ethereum—the two currencies where manipulation is said to have occurred—and creating the false impression among the public at large that there is heavy movement on the counter.Then, people would rush to buy the cryptocurrency, pushing its prices up.

This is another tactic familiar in the stocks and other instruments trading and again, it is only the oversight that keeps a check and protects the gullible investors.

Lack of Oversight the Major Issue

If one were to analyze the underlying reasons for this chaotic situation in the cryptocurrency markets, it will be clear that it is due to the lack of proper oversight that is resulting in these excesses. It is therefore incumbent on the investigators from the DOJ to do a thorough study and make recommendations for some kind of regulation to be put in place.

The Commodity Futures Trading Commission (CFTC) is also part of the investigation team, and they are definitely fully conversant with the way these price manipulations are precipitated.

As reported already, Wall Street has jumped into the cryptocurrency game after a lot of hesitation and has started trading in some of the derivatives of Bitcoin and other cryptocurrencies, not the currency itself directly. Their dealings on the appropriate exchanges fall under the oversight of the CFTC.

Governments Still Sitting on the Fence

Bitcoin rising and falling in financial business market concept with charts.

There must have been a general perception among many that the wild fluctuations in the price of Bitcoin (BTC) could be the result of some kind of manipulation or being artificially orchestrated.

But the larger question still remains of the federal governments in large economies, starting with the U.S., being still not keen on granting recognition to the digital currency. It is only when/if they do that the rest of the actions, like constituting the regulatory bodies, can follow.

The reluctance to do so is fully understandable, since these cryptocurrencies are not backed by any physical asset. They can vanish one fine moment and no one can do anything about it. That and the fact that there is a type of negative perception about the cryptocurrencies being used to deal in illegal transactions had only kept the giants of Wall Street away from them for so long.

This could even be a catch-22 situation for the governments; damned if they do and damned if they don’t.

The other factor which keeps the government engaged in the happenings with the cryptocurrencies is the interests of the investors. One cannot question public sentiments when it swings one way or the other.

In speculative markets, a large part of the investing public blindly follows the superficial market movements and hardly 10 or 15 percent of the investors are professional and base their investment decisions on sound analysis and a scientific approach.

The governments cannot watch as average people sell all they own to invest in Bitcoin and then face the prospect of losing their all. In some advanced economies, it could add to the governments’ social security bill, which they would desperately want to avoid.

Considering all these, the market will wait with bated breath for the DOJ and CFTC to quickly conclude their investigations, find the culprits and bring them to book. BTC prices fell 20 percent on hearing the news of the investigation.

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Author: Geoffrey

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