Bloomberg is reporting that the US Justice Department is preparing an in-depth criminal investigation concerning the big fluctuations of Bitcoin and Ethereum prices in the last 6 months. Bitcoin's story was one of ups and downs for a long time now and this prompted a full-on market manipulation probe. For this endeavor, the Justice Department will be assisted by numerous other agencies and helped by US Commodities Futures Trading Commission which has declared cryptocurrencies as such.
This investigation will concern such illegitimate practice and processes as spoofing, which influences the value of the currency and its price by placing false orders on exchanges that are then withdrawn. The increased volume of placing orders prompt people to buy and sell the currency in larger amounts. Another form of market and price manipulation is wash trading, which creates the illusion of increased market activity by having only certain members of the market trade the currency between themselves.
John Griffin, University of Texas finance warns against the risks in the market of digital currencies: “There’s very little monitoring of manipulative trading, spoofing and wash trading. It would be easy to spoof this market.”
Trading of cryptocurrencies is divided into a fragmented platform all across the globe, many of them unlicensed and unregistered. Due to the meteoric rise of Bitcoin in 2017 when it reached the value of almost $20,000 in December after starting out below $1,000 in January, thousands of people jumped on the investment bandwagon without being fully aware of what this entails in reality. Experts on the matter say that there are several key reasons why digital currencies are prone to fraud: huge price swings that makes valuations relative, a lack of regulations such as those that stocks have and skepticism regarding the idea that exchanges pursue cheaters.
Last week, Bitcoin fell below the $8,000 mark once again and the news of the investigation that broke out on Thursday further helped drop the cryptocurrency's value to below $7500. Its value has nosedived more than 20% since it peaked on May 4th. Despite that, cryptocurrencies still continue to be all the rage in some regions of the world and among the Bitcoin loyalists – but some countries like China and Japan have taken stern measures towards strict regulation or, in the case of China, a complete ban of cryptocurrency exchanges.
Source:
“U.S. Launches Criminal Probe into Bitcoin Price Manipulaton”, Matt Robinson and Tom Schoenberg, bloomberg.com, May 24, 2018.
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