As spot trading on cryptocurrency markets remains largely unregulated there’s possibility such practices really take place which involve flooding the market with false orders to create the impression of genuine market activity.
The investigation is in its early stages, and the coins prosecutors are examining include Bitcoin and Ether.
In spoofing, a trader creates multiple orders, then cancels them once prices move in a favorable direction. In wash trades, a cheater is trading with themselves to give a false impression of market demand that lures others.
This method may account for over $3 billion on all cryptocurrency markets, one analysis by a crypto trader claims. If confirmed as true, over 90% of the orders on one major exchange, OKEx, could be false, according to the analysis.
The investigation is the US’s latest effort to crack down on the cryptocurrency industry. According to Bloomberg, the Justice Department will collaborate with other agencies, namely The US Commodities Futures Trading Commission (CFTC).
The investigation will involve examining operations of two firms, Bitfinex and Tether. One theory is that Tether tokens may have been used to manipulate the price of Bitcoin which raised its price by as much as 40% last year.
The price of Bitcion has fallen by 20% over the past month, and from a nearly $20,000 all-time high in mid-December, to about $7,500 today. Various cryptocurrency enthusiasts have long believed bitcoin’s price is actively being manipulated, but there was no proof for their suspicions.