US Justice Department Begins Criminal Investigation of Bitcoin Manipulation

The authority is reportedly working with the Commodity Futures Trading Commission.

The US Justice Department has launched a criminal investigation into Bitcoin price manipulation, according to a Bloomberg report which cites four people familiar with the matter. There is as yet no official confirmation.

A single bitcoin is currently worth $7,372, and the network has a market capitalisation of $125.7 billion, according to coinmarketcap.com. Over the last month, there has been a general decline in price, as can be seen in the graph below.

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Coinmarketcap.com

Reportedly, the authority is working with the Commodity Futures Trading Commission, an American financial watchdog, and focusing on illegal practices such as spoofing. This is when market optimism/pessimism in a commodity is generated by way of large numbers of fake orders. This affects market activity and thus the price of that commodity.

One example of spoofing was at Citigroup – between 2011 and 2012 its employees flooded the market with fake orders on more than 2,500 occasions. The practice was systemic, involving a number of employees working together to bring profit to the bank by manipulating the market.

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The Dodd-Frank Act (now being repealed) gives the CFTC power to police this practice – it was this authority that eventually fined Citigroup $25 million.

The CFTC is also the body that regulates Bitcoin derivatives in the US. According to the report, federal prosecutors are working with this agency in its investigation. The cryptocurrencies being examined include Ethereum.

Because regulation of cryptocurrency is at best partial in most places in the world, dishonesty is prevalent. There have been claims that the largest cryptocurrency exchange in the world is falsifying its numbers (which it denies), allegations of pump and dump schemes, accusations of insider trading at another major exchange – you name it.

John Griffin, a University of Texas finance professor, said: “There’s very little monitoring of manipulative trading, spoofing and wash trading. It would be easy to spoof this market.”

For these reasons, the CFTC has asked for surveillance of two major traditional financial exchanges that now serve Bitcoin futures to avoid criminal activity.

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