Bitcoin value gyrates amid report of Department of Justice manipulation investigation


Bitcoin prices see-sawed Thursday following a report that the Department of Justice and the nation’s top commodities regulator are investigating whether traders have manipulated the price of digital currencies.

The value of Bitcoin, the largest digital currency by market capitalization, fell roughly 3% to a six-week low of $7,272 in early trading, according to the CoinDesk price index. After a subsequent recovery, Bitcoin was fractionally higher at $7,524 in late-morning trading.

The price swings came after Bloomberg News reported that the Department of Justice had opened a criminal investigation of potential cryptocurrency market manipulation. Federal investigators are working with the U.S. Commodity Futures Trading Commission, which regulates financial derivatives that have values linked to digital currencies, the report said.

Investigators are focusing on banned trading tactics that can trigger price swings. They include spoofing, a strategy in which traders submit fake transactions in an effort to fool others into buying or selling, the report said.

The investigation also focuses on so-called wash trades, a tactic that involves a trader simultaneously buying and selling the same financial instruments. Such transactions may give a false picture of market activity and lure others into trading.

The Department of Justice declined to comment. The CFTC said the regulator would “neither confirm nor deny any investigative activity.”

In general, federal investigators and regulators have been scrutinizing trading in Bitcoin and other digital currencies based on a history of erratic price swings in cryptocurrency values and fears that markets that host the trading may not have sufficient safeguards to detect and halt fraud.

In a February advisory to consumers and investors, the CFTC warned about trading schemes that can occur “in thinly traded or new ‘alternative’ virtual currencies and digital coins or tokens.”

“Customers should not purchase virtual currencies, digital coins, or tokens based on social media tips or sudden price spikes,” the regulator cautioned. “Thoroughly research virtual currencies, digital coins, tokens, and the companies or entities behind them in order to separate hype from facts.”

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The CFTC on Monday issued guidance to registered exchanges and clearinghouses that list new derivatives linked to digital currencies. The regulator advised trading centers to focus on “enhanced market surveillance” and reporting large traders while maintaining close contact with the CFTC’s staff.

Separately, the Securities and Exchange Commission warned in March of “potentially unlawful” online trading platforms that lack regulatory oversight. The warning from the Wall Street regulator said its staff is concerned that many online trading platforms might give investors a “misimpression” that the markets are SEC-registered and regulated.

“Although some of these platforms claim to use strict standards to pick only high-quality digital assets to trade, the SEC does not review these standards or the digital assets that the platforms select, and the so-called standards should not be equated to the listing standards of national securities exchanges,” the SEC cautioned.

Follow USA TODAY reporter Kevin McCoy on Twitter: @kmccoynyc

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