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The US Department of Justice has opened a criminal investigation to determine whether traders are manipulating the price of bitcoin. The investigation focuses on illegal practices that can influence prices, including spoofing and wash trading. Federal prosecutors are working jointly with the CFTC - Commodity Futures Trading Commission - on this issue.
The cryptoactives market: fertile ground for market manipulation
This interest in the potential manipulations of the cryptoactives market is not surprising. Indeed, the high volatility of the sector can help to hide these practices.
When you add this to the lack of regulation, you get a fertile ground for manipulation. In addition, the US authorities suspect that the exchanges do not take the necessary measures to identify cheaters.
The illicit tactics that the Justice Department is addressing include spoofing and wash trading.
- Spoofing is a practice of placing a series of important orders at a price different from the market price, to influence traders in the desired direction. Once the price moves in the desired direction, the manipulator cancels his order. If the false orders are quite large, then other traders can be influenced by these buying or selling signals.
- Washing , meanwhile, implies that an actor sells and buys his own positions to simulate a high volume of orders, in order to win the trust of other investors, and attract them to the market.
Bloomberg tried to approach the DOJ - Department of Justice - as well as the CFTC, but both organizations declined to comment on the investigation. However, a source close to prosecutors announced that the investigation is currently only on Bitcoin and Ethereum.
Market manipulation, a needle in a haystack
Presumably, this survey will prove difficult. These practices are not always obvious to detect. For example, the CME Group spends more than $ 45 million a year fighting against market manipulation. And yet, the CTFC reminds him regularly to order, believing that the exchange does not take the necessary measures to prevent these practices.
In addition, the cryptocurrency market is composed of a myriad of exchanges that are not necessarily based in the United States. Finally, the CFTC only has jurisdiction over cryptocurrency derivatives, including futures contracts. On the other hand, in case of flagrant manipulation on an exchange, the CFTC has the power to impose sanctions.
Anticipating this problem, the Winklevoss brothers are collaborating with NASDAQ Inc. The company monitors the exchanges taking place on the Gemini platform using SMARTS Market Surveillance, a tool that automatically detects suspicious exchanges and illegal trading practices.