Is Bitcoin Being Manipulated by Traders? The U.S. Government Has Opened a Criminal Probe

The U.S. Justice Department has started a criminal investigation into market manipulation of bitcoin prices, Bloomberg reported today. The probe will look for evidence of practices like spoofing and wash trading, both of which involve creating false orders to create the impression of genuine market activity, the report said, citing anonymous sources with knowledge of the investigation.

The Justice Department’s probe will include other agencies, the sources said. It will work with the U.S. Commodities Futures Trading Commission (CFTC) which oversees bitcoin derivatives such as futures, and has declared that cryptocurrencies are commodities. Spot trading on cryptocurrency markets remains largely unregulated.

The CFTC has sent a subpoena to at least one cryptocurrency exchange, Bitfinex, in recent months. The agency reportedly subpoenaed the exchange in December, Bloomberg reported at the time. It also sent a subpoena to Tether, a firm that issues a digital currency that is pegged in value to the U.S. dollar and which it claims is backed up by currency reserves. Tether’s claim, and its relationship with Bitfinex, is shrouded in mystery.

Tethers may have been used to manipulate the price of bitcoin. One theory is that the Tether token has propped up the price of bitcoin by as much as 40% during its historic rally last year. More prosaic price manipulation methods, such as faked orders, may also affect the bitcoin price. Such methods, known as wash trading, may make up over $3 billion of all the trading in cryptocurrency markets, one widely circulated analysis by a crypto trader has claimed. That means over 90% of the orders on one major exchange, OKEx, could be false, the analysis claims.

If traders are indeed capable of manipulating crypto prices, they may not have been at it recently. The price of bitcoin has fallen by 20% over the past month.