Crackdown on virtual currency tampering

File image: IOL.

INTERNATIONAL – The US Justic Department has opened a criminal probe into whether traders are manipulating the price of Bitcoin and other digital currencies, ratcheting up the scrutiny of red-hot markets that critics say are rife with misconduct.

This is according to four people familiar with the matter. The investigation would focus on illegal practices that can influence prices – such as spoofing or flooding the market with fake orders to trick other traders into buying or selling.

They said prosecutors were working with the Commodity Futures Trading Commission, a financial regulator that oversees derivatives tied to Bitcoin.

The authorities have long raised concerns that virtual currencies are susceptible to fraud for multiple reasons: scepticism that all exchanges are pursuing cheaters; wild price swings that could make it easy to push valuations around; and a lack of regulations.

The concerns have prompted China to ban cryptocurrency exchanges, while Japan and the Philippines have regulated them, contributing to a slump that has sent Bitcoin below $8000 (R100884) this year.

The department is looking at illicit tactics that include spoofing and wash trading – forms of cheating that regulators have spent years trying to root out of futures and equities.

In spoofing, a trader submits a spate of orders and then cancels them once prices move in a desired direction. Wash trades involve a cheater trading with himself/herself to give a false impression of market demand that lures others to dive in too. Coins prosecutors are examining include Bitcoin and Ether.

The Justice Department was not available for comment. The investigation, which the sources said is in its early stages, is the US’s latest effort to crack down on an industry that was initially embraced by those who were distrustful of banks and government control over monetary policy. 

– Bloomberg/African News Agency (ANA)