US Department of Justice will work closely with the US Commodity Futures Trading Commission to launch a criminal investigation into cryptocurrency price manipulations. The two agencies will collaborate to determine if illegal practices are being used to manipulate the prices of digital currencies and benefit some users.
Four sources close to the probe have revealed that it will be a private investigation and is currently in its primary stages. The sources also disclosed that the federal agencies are looking specifically into a practice known as ‘spoofing.’ The manipulators launch several fake orders in the market to increase demand, thereby helping prices move upwards. Later, they cancel these orders and bring the prices down with equal force.
By this means, the cheater artificially inflates the prices of the coins, and when his holdings are sold, he cancels all his orders to let the prices fall back to original levels. This could bring them serious profits, depending on the value of their holdings and total upsurge. They could also cause hundreds of investors lose their hard-earned money in the process.
Cryptocurrencies are not issued or regulated by a government or a central bank. They are also not under the purview of the US Securities and Exchange Commission. The Wild West of the finance world, these digital assets have become a lucrative market, thanks to their high volatility and unprecedented price gains. There is no real way of finding that crypto exchanges are actively pursuing these price manipulators. Also, determination of these orders could be difficult, and recovery of lost funds from fake crypto startups is also a huge problem.
The most dangerous aspect of the digital coin problem is ICO or initial coin offering. Several fake companies have mushrooms in the US over the course of the past year that claim to provide valuable ‘tokens’ as proof of stake in their ideas or profits in exchange for investment. Upon completing their goals, these companies vanish with the investor money overnight. As most crypto wallets and transactions are anonymously made and all documents of the business fake, fund recovery is impossible.
These scams had become so prominent by March that the SEC was forced to open investigations and crack down on companies that engaged in these practices. The agency believes that all digital coins should be listed as securities in the US. This makes then akin to other tradable financial instruments that gain and lose value over time and can be taxed accordingly. As they will also be registered with the regulators, oversight will become easier.
After reaching their all-time peaks in December last year, several cryptocurrencies are trading for at least half of that value now. This is primarily because of regulatory oversight applied in Japan, South Korea, and the Philippines. China earlier banned crypto exchanges and trading altogether and is now cracking down on mining as well. At the same time, Google and Microsoft have also banned crypto related ads on their platforms due to frauds and unregulated markets.
As the Justice Department and CFTC work together on their criminal investigations, new scams could be unveiled in the months to come.
