Eoh Kyung-hoon, leader of a club studying cryptocurrencies, checks a chart after a meeting at a university in Seoul, South Korea, December 20, 2017.REUTERS/Kim Hong-Ji
- The US Justice Department and the CFTC are investigating spoofing and wash trading in cryptocurrency markets, according to Bloomberg.
- These are forms of market manipulation designed to influence the price of assets. They are illegal in mainstream financial markets.
- A BI investigation last year found "pump and dump" scams — where groups falsely ramp up the price of assets for profit — are rife in cryptocurrency markets.
LONDON — The US Justice Department has reportedly opened a criminal probe into potential market manipulation of bitcoin prices, according to a Bloomberg report.
Bloomberg reported that the Justice Department is working with the Commodities and Futures Trading Commission (CFTC), which oversees cryptocurrency derivatives, to investigate potential market manipulation.
The investigation is said to focus on "spoofing" — where false orders are placed on exchanges and then withdrawn to manipulate prices — in an attempt to lure other people into buying or selling and "wash trading," where market participants trade with themselves to create the illusion of market activity.
These kinds of activities allow bad actors to manipulate the price of assets in their favour. Spoofing and wash trading are illegal in mainstream regulated markets such as equities and futures.
There are around 26 different ways to manipulate a market, according to a study last year.
A Business Insider investigation last year found so-called "pump and dump" scams are rife in cryptocurrency markets. This is where people "pump" a price of a certain crypto by bidding up the price before "dumping" it on unsuspecting traders who are lured into the market by the pumpers who say the price is only going up.
The US Securities and Exchange Commission subsequently cited Business Insider's investigation in a report highlighting concerns about cryptocurrency markets.
Anonymous Twitter account Bitfinex'ed, which has over 38,000 followers, has also repeatedly drawn attention to alleged instances of wash trading and spoofing, calling for action from regulators.
Bloomberg reports that the US regulators' investigation, which is in its early stages, focuses on bitcoin, ether, and other major cryptocurrencies.
Business Insider interviewed an alleged "pump and dump" ringleader last year who claimed to have been involved in bitcoin price manipulation in the past but said the size of the market made it too hard to manipulate today.
"We did manipulate these but now it's too hard with big market capitalization," the trader, who went by the name Nico, claimed. "Our biggest power ever has been around $5 million... [for] one of the groups."
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