Bitcoin Price Manipulation? What's Going On?


June 08, 2018

Issue 26: Bitcoin Price Manipulation? What's Going On?

There are so many different things going on with Bitcoin now, from hackers stealing it, to the price fluctuating all the time. The latest issues surrounding Bitcoin are dealing with price manipulation, and it has the U.S. Justice Department taking notice.

The Justice Department decided to launch a criminal investigation into whether or not traders are promoting shady practices and manipulating the price of Bitcoin. As this digital currency continues to gather steam, misconduct is running rampant.

The current investigation examines whether or not individuals can influence the price through tactics such as creating fake orders, or spoofing. The Commodity Futures Trading Commission, or CFTC, is working in conjunction with federal prosecutors to investigate allegations and seek checks and balances. The main concern is that with virtual currency already prone to fraud, the lack of regulations make it even easier for criminals to thrive. These concerns have resulted in China banning cryptocurrency exchanges altogether, and the Philippines and Japan are working to put regulations in place which aim to prevent criminal activity.

The Real Problem
Even thought the tactics being used are quickly raising questions, the Justice Department is considering the possibility that traders are colluding in criminal activities such as wash trading and spoofing. Wash trading allows a cheater to trade with themselves to make it look like there is a demand when there is none. This helps drive the price up as demand grows. Ether is also being looked at as a possible target for price manipulation.

One of the main problems with cryptocurrency trading is that there are a number of platforms all over the world that are not registered entities with the U.S. Securities and Exchange Commission (SEC) or the CFTC. Even with these entities not being registered, if the CFTC finds improper practices going on, they have the right to impose sanctions. Manipulative trading is hard to monitor, giving cybercriminals yet another way to steal. More participants in the market have come forth and alleged that bitcoin manipulation has been widespread, including a group of traders that placed over a million dollars of orders without their execution.

Curbing the Problem
How can this problem be solved? As more regulatory agencies move to create and enforce regulation, more exchanges are seemingly going underground to avoid these restrictions. As investors continue to spend their money based on metrics that could possibly be false, there are no systems in place to replace that money once it is gone. With the Justice Department investigating these allegations, the next step would be enforcement of sanctions to those organizations that have proven to be fraudulent. The problem is finding and dealing with those they do not know about.

Cybercriminals continue to find inventive ways to build trust, convincing others that cryptocurrency is the way to go. Without regulations in place, the bitcoin manipulation systems have an opportunity to grow even larger, posing great risk to the financial wellness of small business owners who seek a way to enhance their capital, and the common consumer who is searching for the next big thing.