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DOJ Opens Probe Into Bitcoin Price Manipulation

bitcoin fraud

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The US Department of Justice has opened an investigation into possible Bitcoin price manipulation. The investigation will look into allegations of both “spoofing” and “wash trading,” and will also examine potential price manipulation in Ethereum markets. It is unknown who the targets of the investigation are or whether the suspected or alleged price manipulation was undertaken to drive prices up or down.

Spoofing is a technique in which a trader will place an order and then cancel it. In a small, lightly-traded market, large purchase orders can boost prices temporarily by giving the illusion of increased demand. The trader can use that price boost to sell his own assets and cancel the spoofed order before it is fulfilled, at which point prices will drop to a more natural level.

Wash trading is when a trader buys his own orders, which again can create the illusion of increased demand. Of course, wash trading can also be used to try to push prices down, as when other traders see sales prices decreasing in wash trading transactions they may panic and try to sell their assets before prices drop too low. The concept of wash trading is similar to that of shill bidding in online auctions, with which many people are familiar, where the seller of a good creates fictitious accounts to bid up the price of an auctioned item to get other bidders to bid more money.

Financial markets of all sorts have been the target of manipulators, with commodities such as gold and silver especially being targets for large traders looking to gain an advantage. Given the relatively small size, fragmentation, and youth of Bitcoin and Ethereum markets, cryptocurrency exchanges could be targeted by manipulators bent on mischief. Incidents of suspected manipulation have occurred, but they’re generally pretty clear, and the cryptocurrency community identifies them and warns investors quickly.

Bitcoin IRA investors shouldn’t have much to worry about, since their investments are longer-term, whereas spoofing and wash trading are an attempt to make short-term trading gains. Over the long term, price manipulators can’t influence markets to any significant degree. And as Bitcoin and Ehthereum continue to gain in importance and popularity, the increased trading volume will make it more and more difficult for price manipulators to gain a foothold in the market.