US Justice Department investigating Bitcoin price manipulation schemes
Bitcoin has gone through a rather significant depreciation since the start of this week, dropping from around US$8,400 to somewhere close to US$7,000. While the drop was gradual in the first days, some sudden drops occurred in the last 2 days, when news about the US Justice Department investigating cryptocurrency price manipulation schemes started to permeate the media.
It seems like crypto traders borrowed a few tricks from their counterparts working in the traditional securities markets, and, due to the high volatility and unregulated nature of the crypto world, crypto traders are able to pull wild price swings that may benefit small groups, which get organized via Internet chat rooms. Some of these tricks of the trade include spoofing large fake orders in order to trick unaware traders to jack up the price or quick pump-and-dump techniques involving “fake” coins.
In regards these “down and dirty” schemes, Bloomberg reports that “the illicit tactics [...] the Justice Department is looking into include spoofing and wash trading — forms of cheating that regulators have spent years trying to root out of futures and equities markets, [...] In spoofing, a trader submits a spate of orders and then cancels them once prices move in a desired direction. Wash trades involve a cheater trading with herself to give a false impression of market demand that lures other to dive in too.” The prosecutor’s eyes are especially directed at Bitcoin and Ethereum.
On top of this, China recently banned its crypto exchanges and also prohibited Japanese and Philippines exchanges to receive any orders from China. Still, the digital coin market is active like never before, with many ICOs and celebrity endorsements piquing the interest of Wall Street investors.