What Do We Know About the CFTC Price Manipulation Probe

On June 8, it was reported that the U.S. Commodity Futures Trading Commission demanded extensive trading data from several cryptocurrency exchanges in order to investigate whether there has been price manipulation in the crypto market.

Earlier, on May 24, Bloomberg reported that a criminal probe into Bitcoin and Ethereum price manipulation by crypto traders had been opened by the U.S. Department of Justice in conjunction with the Commodity Futures Trading Commission.

Thus, regulators from the CFTC were allegedly upset that CME does not have agreements which obligate crypto exchanges to share price data that is related to futures contracts.

As mentioned above, last month the DOJ opened a similar - but separate - investigation into BTC and ETH price manipulation.

The Wall Street Journal's article mentions 'spoofing' as one of the examples of illegal trading schemes that are investigated by CFTC. The May report regarding the separate criminal probe launched by DOJ also listed 'wash trading' in a similar context.

Spoofing is a process when a trader creates an order for a substantial amount of BTC to form the illusion of exchange optimism or pessimism - depending on their goals - and then cancels it, i.e. when someone puts an order to sell 2000 BTC, it might cause some panic among traders, rushing them to sell their stock before the price drops, effectively dropping that price as a result.

An article in the Journal of Monetary Economics published by a group of academics in early January, suggests that the price of Bitcoin was artificially bloated in 2013 by a single player operating on the largest exchange at the time, Mt. Gox and trader Sylvain Ribes published a Medium post in March, arguing that about $3 billion of all crypto-assets' volume is trumped up.

Wash trading, in turn, is when a trader simultaneously sells and buys the same amount of BTC, essentially trading with himself.

In theory, there are more ways to manipulate the price of BTC: the FICC Markets Standards Board, the UK industry body overseeing standards in fixed income, currency and commodity trading, lists about 24 of them besides spoofing and wash trading.

While the CFTC probe into four major exchanges is considered to be one of the reasons for the price drop, it might have also been related to the mainstream media reports regarding the security breach of South Korean crypto exchange Coinrail.