Whale Watching: US Regulators Open Probe on Suspected Market Manipulation

The erratic behavior of Bitcoin market prices, the overheating and rapid slumps, have caused suspicions of concerted market manipulation.

In cryptocurrency trading, it has always been known that large entities could sway any market. When it comes to altcoins trading against Bitcoin (BTC), there are enough large-scale Bitcoin holders that can steer the price in any direction.


The US Justice Department has started a criminal probe into market manipulation behavior, such as spoofing, flooding the market with orders, or posting fake orders that are then pulled back. The crypto market has absolutely no regulations on market behavior, which has caused dramatic, artificial-looking appreciation of BTC, with $1,000 per day not an unusual occurrence.

Federal prosecutors are working with the Commodities Futures Trading Commission (CTFC) to estimate the level of market fraud.


But in 2018, it may be very difficult to put out a rationale for punishing moves in crypto trading. Most exchanges have turned to crypto-only deals, relying on fixed-price tokens or native exchange tokens. Since crypto coins are unregulated, it is unknown what rules could be placed for crypto-only exchanges. BTC prices are a bit less volatile, with fluctuations within 5%, which at these prices is still significant.

The current investigation will look at trading strategies that create a false price movement. Spoofing - placing and pulling multiple orders, may cause other market participants to place their own orders. Wash trading - when a trader places and fulfills their own orders to lift the price, will also see scrutiny.

“There’s very little monitoring of manipulative trading, spoofing and wash trading,” said John Griffin, a University of Texas finance professor who has studied the crypto market.  

During the rapid appreciation of Bitcoin in 2017, the crypto community watched as “Spoofy”, a trader or a group of traders on the Bitfinex exchange. “Spoofy” has placed orders worth up to $1 million, later cancelling them. Some believe it was the exchange itself that performed those moves to boost the BTC price.


In the latest market downturn, BTC has settled well below $8,000, at$7,617.73. The asset has seen declining volumes and large-scale selling, which some believe is also the result of concerted manipulation to lower the price before the next hype cycle.