Justice Department Investigating Crypto Illicit Practices
According to Bloomberg.com, the federal government has opened a criminal investigation into the manipulative and potentially illegal trading practices employed by fraudulent “spoofers” to directly influence the price of bitcoin and ether in the cryptocurrency market.
The a global “Wild West” of risk-fraught and often wildly profitable crypto trading has not been not subject to U.S. regulations and protections governing traditional markets.
According to sources speaking on terms of anonymity, the Department of Justice is working in cooperation with the Commodity Futures Trading Commission, the federal body which oversees derivatives and futures trading to ensure fair and legal practices and curtail fraudulent market manipulation. While the jurisdiction of crypto trading has not previously fallen under CFTC control—or other federal agencies for that matter—in the past year traditional investors have began offering bitcoin and ether futures, placing some U.S. crypto activity under CFTC jurisdiction.
Largely unregulated, the cryptocurrency market is “rife with misconduct.” In the past year, bitcoin and other cryptocurrencies have seen stratospheric rises in value and equally tumultuous drops. Fueled by the allure of extravagant returns on investments—often 100, 1,000, or even 10,000 percent or more—that early speculators have turned and further hyped by the media and a growing online subculture of crypto fanatics, the space has drawn its share of risk-chasing legitimate investors and a seedy underworld of illicit purchases, mining cartels and runaway market manipulation.
Above: Last Week Tonight covers the crypto market and some of the suspect practices employed by scammers and market manipulators.
Minimally-regulated, cryptocurrency exchanges such as Bitfinex, Coinbase, Gemini, Bittrex, and a panoply of other markets operate in the U.S. and around the world, allowing an easy “on ramp” for users to buy and sell bitcoin and ether with traditional state-backed currencies. Others allow the purchase or trade of other crypto assets—including, on some exchanges, any number of the flood of crypto-based ICO tokens used to raise funds for new services and platforms.
While some of these exchanges are officially registered markets and others offer the security, consumer protection, KYC requirements, and insurance on par with banks and bona fide security exchanges, many crypto markets operate beyond the legal and ethical oversights governing traditional financial markets, allowing or even encouraging activities that are illegal in conventional asset trading.
According to Bloomberg, the federal investigation is focused on such practices used to manipulate crypto prices. The probe is focusing specifically on illegal trading tactics such as wash trading and spoofing. In crypto parlance, “spoofing” refers to the misleading practice of placing large buy or sell orders which are used to manipulate asset price before being changed or cancelled.
Often employed by large-scale investors (“whales”) with large crypto holdings using trading bots, spoofers can make vast profits even by slight manipulation of notoriously volatile crypto markets. According to John Griffin, a University of Texas professor of finance quoted in the Bloomberg article: “[t]here’s very little monitoring of manipulative trading, spoofing and wash trading […] It would be easy to spoof this market.”