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U.S. Justice Department Is Investigating Last Year's Epic Bitcoin Rally - Report

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U.S. Justice Department Is Investigating Last Year’s Epic Bitcoin Rally — Report

(Kitco News) - With bitcoin now below $4,600, U.S. regulators are reportedly expanding their investigation into cryptocurrencies to see whether last year’s massive bitcoin rally was triggered by market manipulation.

At the centre of the investigation is an allegation that traders used tether — another cryptocurrency — to control bitcoin’s price during its unprecedented rally, which saw prices jump from around $5,500 in November of last year to nearly $20,000 a month later.

It is suspected that traders used the crypto exchange Bitfinex to move bitcoin prices illegally, Bloomberg reported citing three unnamed sources familiar with the matter.

Some of the suspicious activity being investigated includes “spoofing,” which is otherwise known as placing fake orders to boost prices and then pulling out.

The criminal probe into cryptocurrencies was first opened by the U.S. Justice Department earlier this year to look into allegations of price manipulation by crypto traders

“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,” Bloomberg said.

The idea that bitcoin’s rally last year was manipulated through tether was also brought up in a research paper published back in June by professor John Griffin and doctoral student Amin Shams from the University of Texas.

“Tether seems to be used both to stabilize and manipulate bitcoin prices,” the paper’s co-authors wrote.

Griffin and Shams went on to explain that traders would buy the cryptocurrency via tether when bitcoin would decline in order to stabilize and boost prices.

“Overall, our findings provide substantial support for the view that price manipulation may be behind substantial distortive effects in cryptocurrencies,” they said.

There are also concerns surrounding tether itself, which claims to hold $1 in reserve for each tether issued. At the time of writing, tether was trading at 97 cents, down 0.58%.

Bitcoin, in the meantime, continued to fall, last trading at $4,569.40, down 0.03% on the day, following a significant drop from over $6,400 seen just last week.

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.

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