There has been a criminal probe into the possibility of crypto price manipulation by the traders of Bitcoin and Ethereum opened up by the United States. It has been reported that the Department of Justice is looking into activity surrounding these two cryptocurrencies. Commodity Futures Trading Commission and other federal prosecutors will look into the evidence to see if any traders in these two markets have manipulated prices through spoofing or wash trading.
Crypto Price Manipulation?
As with anything that can be traded, cryptocurrency prices depend on many factors. One of these is the positive or negative feelings of the market and the individual investors making trades within it. While this sense of movement, and the potential of a particular crypto coin, can be hard to quantify, it is something that experienced investors pay close attention to.
Because the impact of those feelings, positive or negative, also have a significant effect on the marketplace and the tendencies of cryptocurrency investors to buy or sell their coins, these factors are crucial to the value of the crypto coins even if those factors are often hard to identify.
The very fact that those positive and negative feelings are elusive is what makes spoofing possible. Traders who want to manipulate a given market create illusions of optimism if they’re going to increase the valuation of a crypto coin, and create the illusion of pessimism when they want to drive the price down. To do this, the traders will generate orders without any intention of filling them. This tricks legitimate investors into buying or selling, and the price of the crypto coins suddenly are in jeopardy of being adjusted. Once the adjustment happens, the bogus traders then cancel their orders. Spoofing is the very reason that the US Department of Justice has opened an investigation into Bitcoin to determine if manipulation has occurred.
Wash trading is something that happens when a trader buys their own orders. This, once again, gives the appearance of trading activity that just isn’t happening. These trades are only used to manipulate markets and encourage other investors to buy, buy, and buy. In these types of trades, there is no market risk for the manipulator, who only stands to gain from his or her bogus activity.
The Securities and Exchange Commission started its investigation back in March. However, many companies involved in crypto, like tZero, which is a subsidiary of the Bitcoin-friendly Overstock.com, fell under the radar of this investigation, which begs one to wonder what good the inquiry will do. Soon after that began the United States and Canada started something called Operation Crypto Sweep, which is a joint effort to root out fraud in the world of crypto. But with the current state of affairs between these two nations getting sour by the hour, who knows if this will even have any impact.
What we do know is that with governments now getting involved in crypto one can see the possibility of centralized regulatory bodies coming into play with regulation. This would defeat the whole purpose of having a decentralized monetary system free of such regulation, and the possibility of a few ruining it all for the many could at this moment be happening. We will simply have to wait it out, and see where this all ends up.
Do you think there’s been crypto price manipulation?
Featured image: CryptoCoinMastery