The investigation will focus on commonly adopted price manipulation techniques such as spoofing (flooding the market with large orders and then removing it before getting executed) and wash trading. According to a Bloomberg report, the Federal prosecutors are working with the Commodity Futures Trading Commission, which overseas Bitcoin derivatives offered by CBOE and CME.
There are several reasons for authorities to believe that cryptocurrrency market is rife for manipulation. Firstly, none of the cryptocurrency exchanges monitor for any kind of malpractice employed to push prices artificially as they are more concerned only about luring more customers to rake in millions in the form of commissions. Secondly, lack of regulations have given a free hand to scammers and price manipulators. Finally, there is no accredited institution which is looking into all the ICOs and blockchain projects, track them and provide a fundamental analysis report. All these factors favor price manipulators.
Because of these concerns, China has banned Bitcoin and other cryptocurrencies. Some countries, such as Japan and Phillipines, have gone ahead to tighten the noose on cryptocurrency exchanges. Still, cryptocurrencies remain the darling of retail investors. In addition, the support Bitcoin and other cryptocurrencies receive from several celebrities and from the Wall Street, to a certain extent, has turned it an attractive place for hackers, scammers, and price manipulators to operate.
The Justice Department, which had spent years trying to root out illegal trading activities such as spoofing and wash trading (trading with one’s self) in equity and futures market, is now looking at cryptocurrency market to identify criminals who employ similar tactics. In particular, Bloomberg has reported that prosecutors are looking at Bitcoin and Ethereum transactions to identify price symptoms of price rigging. The Justice Department officials have neither acknowledged or denied the probe.