The US Department of Justice has initiated an investigation into potential crypto-market manipulation by crypto traders, Bloomberg reports. The report cites four people familiar with the situation and shows that DOJ prosecutors are working in partnership with the Commodity and Futures Trading Commission to investigate the matter. The DOJ believes that digital currencies are very vulnerable to fraud, especially given the sector's lack of regulation
Fake Orders and Spoofing
The investigation will focus on a series of illegal activities that allow traders to manipulate the price of cryptos One of them is spoofing. Spoofing is when traders initiate large orders to give the illusion that the demand for cryptography is high before being canceled once the price moves in a particular direction. This practice has already been observed on the market. Another illegal activity being investigated is the laundromat, where a trader sells Bitcoin to himself essentially, creating the illusion of high market demand that affects the price.
According to sources, Bitcoin and Ether are the two digital currencies that are being investigated. The news comes as the price of Bitcoin and most cryptocurrencies has fallen as regulatory concerns increase. As markets are still largely speculative, negative news has always fed fear and caution to traders, which has led to lower demand and a subsequent price decline.
In the past, the crypto exchanges themselves were accused of having committed counterfeiting and spoofing. In a blog post, crypto-trader Sylvain Ribes revealed a scam in which large crypto exchanges were said to have fabricated up to 90% of their daily trading volume. According to the Post, OKEx, the world's largest stock exchange, was the biggest culprit, with 93% of its trades made. Other exchanges accused of the same conduct are Huobi (80%), HitBTC and Binance. Ribes also expressed concerns about Chinese stock exchanges, which were relatively unknown but had very high trading volumes, sometimes higher than their more popular US counterparts.
The investigation is healthy for the market: Novogratz
Billionaire investor and crypto-advocate Mike Novogratz has welcomed the probe and describes it as a healthy development for the market. Speaking to Bloomberg on the phone, Novogratz agreed with the DOJ and said that because of his own trading experience, he knows that many exchanges are puffing up trading volumes just to delight their users. He describes the investigation as overdue and believes that this will help isolate the bad players in the industry, which is ultimately good for long-term wealth.
Tyler Winklevoss, president of the Gemini Stock Exchange, shares these feelings. In a statement written by e-mail, he welcomed the investigation, saying that this would discourage malicious actors and promote the growth of a rule-based marketplace. The Winklevoss twins, who were among the earliest crypto investors, have also taken their own steps to protect the Gemini Exchange from market manipulation. Last month, they announced that they had entered into a partnership with Nasdaq, a move that enables stock market trading to monitor unusual trading activity using Nasdaq's SMARTS market surveillance technology. The technology automates the detection and investigation of unusual trading and market behavior and is used by more than 1