The US Department of Justice (DOJ) has opened a criminal investigation into whether traders are manipulating the price of Bitcoin and other cryptocurrencies, according to a report published Thursday by Bloomberg.
The most notable concern coming from the DOJ relates to a suspected potential that the volatility of the market creates an opportunity for investors to push price valuations in a way to favor themselves.
Additionally, authorities feel cryptocurrencies are particularly susceptible to fraud due to a concern over the lack of regulations, as well as skepticism that every exchange actively pursues those deceiving the rules of the platform.
Spoofing and wash trading
People familiar with the situation told Bloomberg that the DOJ is specifically looking into spoofing and wash trading from colluding traders. These two illicit tactics are forms of market cheating that have been combated by regulators in the futures and equity markets for years.
Spoofing involves a trader submitting a number of orders, then cancelling them once they are satisfied they have affected the prices enough in the desired direction.
Wash trading involves a cheater creating trades with themselves to create a false impression of market movements, which influences others to move in a specific way.
It was reported that both Bitcoin and Ether are being investigated for this, but the DOJ declined to comment on the case at Bloomberg’s request.
After a Bitcoin price surge last year spanning between USD 1,000 and USD 20,000, the cryptocurrency industry has found a host of new supporters and investors. The number of ICOs has also skyrocketed, with a growing number of people aware and involved with altcoins.
Regulators across the globe are now seeing the industry as a growing concern, as investors enter the market without a clear understanding of what cryptocurrencies are, and the risks involved.
Cryptocurrency exchange platforms operate internationally, with many remaining unregistered with any government agencies, leading to a heightened fear of fraudulent activities in general.
Of course, the vast majority of platforms maintain there own strict security measures to protect users and are willing to pursue fraudsters, if not only to protect their own reputation.
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