The Department of Justice has opened a probe into the Bitcoin market to look for traders that are attempting to manipulate its price through various methods, according to a number of people who spoke to Bloomberg on the condition of anonymity.
This investigation will look specifically for people who attempt to manipulate the market through something called “spoofing.” The activity involves making a bunch of false orders on an exchange that encourage other participants to sell their coins or buy them.
To enhance the scope of its analysis, the DoJ will coordinate with the Commodity Futures Trading Commission, which licenses exchanges offering futures contracts.
According to the people familiar with the matter, the authorities are concerned that exchanges are not really doing their job in trying to find manipulators.
In a market like Bitcoin’s, it’s easy to cheat the system because of the frequent real-time price fluctuations that could mask a person’s tampering if they’re relatively skilled and patient.
This is actually one of the concerns that made China attempt to do away with cryptocurrency exchanges. Despite these actions, however, Chinese exchanges have survived and continue to service their clients by operating outside the mainland. In fact, a state-owned Chinese television broadcaster went as far as to say that their operation is in defiance to the country.
Aside from spoofing, the DoJ will be keeping an eye out for wash trading—a manipulation tactic that involves buying large amounts of Bitcoin (in this case) from one broker and selling it through another.
The large-enough amount of “buy” orders in one exchange will lower its BTC liquidity, prompting it to sell the cryptocurrency at a higher price. This would encourage other less savvy investors to get in on the action and purchase it at an inflated price.
If manipulators still have large amounts of Bitcoin stashed in an exchange, it can subsequently sell them in one single order, making other investors suffer losses.
Large exchanges have an incentive to make sure that Bitcoin’s price on their platforms is as close to the mean market value as possible, so it may be difficult for these agencies to find any signs of manipulation on them.
On the other hand, smaller exchanges that may have administrative troubles are more likely to be caught up in this kind of ordeal, intentionally or not.
This article appeared first on Cryptovest
