According to a report from Bloomberg, the United States Department of Justice (DOJ) opened a criminal probe into potential price manipulation in the digital currency market. Reportedly, this probe is investigating if traders are intentionally manipulating the value of digital currencies like Bitcoin.
Volatility is not a strange concept to the digital currency market. In fact, Bitcoin’s exponential price hike in 2017 undoubtedly played a large role in familiarizing the public with the industry.
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However, potentially-criminal digital currency manipulation involves the act of inflating and otherwise controlling prices in order to deceive investors. Regulators cite the already volatile nature of digital currencies as a way for “cheaters” to attempt to control an asset’s price undetected. This initiative from the DOJ is especially focused on illegal market manipulation practices such as spoofing and wash trading, according to Bloomberg’s four currently unnamed sources. ‘Spoofing’ is a term referring to when traders submit a large series of of orders, driving the price in a desired direction before cancelling the orders altogether. Wash trading, on the other hand, refers to a process of a party trading with themselves to create false impressions about the market. Reportedly, for this DOJ initiative, investigators are working with the Commodity Futures Trading Commission (CFTC), which regulates futures and option markets.
To combat issues like spoofing and wash trading, the stock market is largely governed by rules designed to prevent traders from deceiving investors through price manipulation. The digital currency market, however, is still a relatively new landscape. As a result, regulation is yet to strongly address some potential risk areas. Further, a desire not to stifle innovation and to not compromise the decentralized ethos of proponents could create hurdles for regulators.Previously, the CFTC announced action against pump-and-dump schemes in the digital currency ecosystem. These schemes are another form of price manipulation, where large numbers of traders purchase an asset at the same time with the hopes of driving the price, only to sell at the expense of earnest investors. Additionally, regulators announced a combined North American effort this week to crack down on fraudulent digital currency platforms and products. ‘Operation Cryptosweep,’ enlists 40 jurisdictions from Canada and the U.S. in an attempt to broaden regulatory oversight and collaboration in the continent.Image credit: DOJ logo
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