The United States Department of Justice, in collaboration with the Commodity Futures Trading Commission is launching a criminal investigation into potential Bitcoin and other altcoin market manipulation, according to a breaking news report from Bloomberg.
The probe is primarily focused on an old-school manipulation tactic called “spoofing,” where traders with substantial wealth place large volume orders that never execute at key price levels to create buy or sell walls that lure traders to buy or sell in the opposite direction, only to pull the order later on before its ever executed.
The Department of Justice is also looking into claims of “wash-trading” a practice where traders trade with oneself to suggest there is more demand or buying and selling pressure in the market than there actually is.
The investigation, which is in its early stages, is focused on Bitcoin and Ethereum, as well as other altcoins, according to Bloomberg’s sources familiar with the matter.
The practice of spoofing has long been found in traditional markets, but is prominently found in the cryptocurrency market due to lack of oversight and regulation. Without regulation, “whales” or wealthy investors with large trading stacks are free to manipulate the market as they please. Cryptocurrency’s pseudo-anonymity and lax anti-money laundering and know-your-customer policies at exchanges only exacerbates the issue.
Both the Securities and Exchange Commission and the CFTC have taken a more hands-off approach with the cryptocurrency industry, instead cracking down on potentially fraudulent ICOs rather than establishing regulatory guidelines for the industry. Instead, the industry’s leading exchanges in the US are pushing to form a self-regulatory body to avoid government intervention while raising cryptocurrency to higher market standards that are more inviting and less risky for interested investors.