Bitcoin and other cryptocurrencies account for only a tiny part of the global economy. But this does not mean that the regulators will ignore the fraud and manipulation in this market. The investigation of possible manipulation of prices of the digital currency was a natural step for the U.S. government, which in recent months has strengthened control over literally everything — from sales of new tokens (ICO) to cryptocurrency hedge funds.
There are schemes pump-and-dump in which traders for manipulation using digital currency with small market capitalization. Coinbase, the company was faced with accusations of insider trading. Also exchange accused that they ignore so-called wash trading, where one entity buys and sells the same order.
On may 25, we reported that US law enforcement agencies began investigations into the illegal schemes in the stock market, such as spoofing aggressive cancellation of orders with the aim of its possible impact on the market price. Spoofer fooling other investors into buying or selling, exposing their own orders without intent to fulfill them. It creates a fake demand, which pushes prices up or down. Spoofing originated in the era of computerized trading and has become a threat to the “legitimacy” of the market. Regulators and legislators are struggling to keep track of cases of spoofing.
However, it is unclear how the U.S. authorities plan to identify the spoofer and manipulators and to prove their guilt, — even those running on traditional financial markets. The practice of spoofing is illegal in the United States in 2010, and the first court case ended in 2015. In January, the Commission on trade commodity futures (CFTC) announced the creation of a new division for the eradication of this practice. A well-established model for building successful cases against spoofing does not exist yet. For example, it is not specified what percentage of orders have to be cancelled to the situation “suspicious.”
The most notorious case of spoofing to date associated with Citigroup, which in January last year, was fined $25 million for manipulation in the futures market. The CFTC announced that five traders Citigroup spfile more than 2,500 times from July 2011 to December 2012, and the company has no system to detect manipulation.
The desire of law enforcement to understand the world of cryptocurrencies and to demand more transparency is here to stay, which can only have a negative impact on the price of bitcoin. We don’t know the true value of the cryptocurrency, but many are convinced that their price is closely linked with the ecosystem where they are traded. One recent study showed that the growth of bitcoin prices by 700% in 2013 was due primarily to two trading bots on the exchanges.
Today the market is quite different: more traders, more and more altcoins exchanges, but greater transparency is inevitably affected. What’s next? Supporters of bitcoin confidently say that more than a steady market is a healthy development that will lead to an influx of institutional money from wall street. However, the idea that it was not inclined to risk large investors safely plunge into the market just because of the fact that the US government began to measure its depth, does not seem convincing.