Aaron Mak Future Tense is a partnership of Slate, New America, and Arizona State University that examines emerging technologies, public policy, and society. The Justice Department is opening a criminal investigation, along with the Commodity Futures and Trading Commission, into people who may be manipulating cryptocurrencies like Bitcoin and Ether, Bloomberg reported on Thursday.
Sources familiar with the probe told Bloomberg that investigators are in the early stages of examining illegal practices that unscrupulous traders have also been known to use in futures and equities markets. For example, the DOJ is looking into “wash trades,” which involves bad actors trading with themselves to create the illusion of market demand, and “spoofing,” which involves bad actors submitting and then cancelling a bunch of orders to influence a coin’s price.
In one particularly egregious case of spoofing, a trader reportedly placed and then cancelled $1 million worth of orders. There are also legal methods that traders employ to distort markets, like pumping and dumping, which involves artificially inflating the price of a coin and then selling it before others can cash out.
The schemes are more common with smaller, lesser-known cryptocurrencies, since a group of people colluding together can more easily influence the price. Such practices are illegal when it comes to securities, but there are no corresponding laws with it comes to cryptocurrency exchanges.
Authorities are reportedly concerned that cryptocurrency prices are particularly prone to fraud because the markets are largely unregulated and often fluctuate wildly, which can make it difficult to distinguish cheating from natural trends. This vulnerability to manipulation is part of the reason why countries have placed cryptocurrencies under regulation. Read more from slate.com…
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