The volatility of Bitcoin has finally drawn the attention of the U.S Justice Department who believe that traders might be manipulating the market.
The investigation is looking into spoofing, flooding, fake orders and other illegal practices that fool people into trading one way or the other.
Prosecutors are working with the CFTC, a financial regulator that oversees Bitcoin.
The authorities are concerned that exchanges are not actively monitoring or attempting to reduce fraudulent activities on their networks, and a lack of regulation means price swings can be manipulated to affect the market.
Similar concerns have resulted in China attempting a ban on cryptocurrencies and strict regulations introduced in Japan and the Philippines.
Wash trading is at the core of the investigation – a practice where an investor trades with themselves to give false market impressions. Spoofing is also high on their list, where traders put in orders and then cancel them once the market moves.
Bitcoin and Ethereum are the main coins prosecutors are looking in to, amongst others.
Platforms that provide trading of cryptocurrencies are so widely spread it’s difficult to monitor, and many aren’t’ registered with the CFTC or SEC. Spot market trading of actual coins rather than Futures isn’t regulated by the CFTC, but it can impose sanctions if it suspects fraud in the market.
The Winklevoss twins, who run their own exchange Gemini Trust, have recently called for trading platforms to band together and create their own ‘self-regulator’ for the crypto industry.
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