Bitcoin Manipulation Said to Be Focus of U.S. Criminal Probe

The U.S. Justice Department has opened a criminal probe into whether traders are manipulating the price of Bitcoin and other digital currencies, according to Bloomberg, citing people familiar with the matter.

The investigation is focused 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, said the people, who asked not to be identified. Federal prosecutors are working with the Commodity Futures Trading Commission, a financial regulator that oversees derivatives tied to Bitcoin, the people said.

Authorities worry that virtual currencies are susceptible to fraud for multiple reasons: skepticism that all exchanges are actively pursuing cheaters, wild price swings that could make it easy to push valuations around and a lack of regulations like the ones that govern stocks and other assets. Such concerns have prompted China to ban cryptocurrency exchanges and nations including Japan and the Philippines to regulate them.

The illicit tactics that the Justice Department is looking into include spoofing and wash trading, forms of cheating that regulators have spent years trying to root out of futures and equities markets, the people said. 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 herself to give a false impression of market demand that lures other to dive in too. Coins prosecutors are examining include Bitcoin and Ether.