The US Department of Justice has officially launched an investigation into Bitcoin price manipulation, and while some traders fear the potential regulation, others, including some big names in the crypto market, have welcomed the move. Michael Novogratz, billionaire founder of Galaxy Digital, said that “weeding out the bad actors is a good thing, not a bad thing,” before going on to say that some “exchanges have these inflated volume numbers to create some sense of excitement around coins.”
The cryptocurrency market is not currently regulated, and there is a proliferation of pump and dump groups, as well as clear technical signs that prices are manipulated by so-called whales. Another area of concern is in the ICO market. ICOs, or Initial Coin Offerings, can be offered by virtually anybody and “investors” have to rely on whitepapers and fundamental analysis – while it is inevitable that some of these ICOs will fail before their full launch, a report by new.bitcoin.com suggests that nearly 50% of ICOs launched in 2017 have already failed.
One of the biggest scams in crypt’s history was that of the Ponzi scheme, Bitconnect. The crypto lending platform promised returns of 40% per month, and had a four-tier investment system, both of which are common among Ponzi scams.
They also utilised an aggressive affiliate marketing scheme, primarily driven by the tiered investment scheme. For a time, Bitconnect was successful. In fact, it ranked among the top 20 cryptocurrencies with a market cap of nearly $3bn. However, this would all come to an abrupt end.
The company closed down all of its operations, except for the crypto token itself, and turned its website into a crypto wallet. Despite trading at $400 during its peak, BCC now trades at around 50c and left a lot of investors with virtually nothing.
While Bitconnect was big news, the Mt. Gox trading platform was the biggest news and continues to have a ripple effect on the market. Initially set up as a trading platform for the popular game Magic: The Gathering, Mt. Gox rebranded as a Bitcoin marketplace.
While the company can’t be blamed for the Denial of Service attacks or large-scale hack that occurred, since the platform closed down, investigations have unearthed some very shady deals. Following the platform’s bankruptcy, at least 35,000 Bitcoin and
Bitcoin Cash have been sold, with some claiming that the sale led to a crash in Bitcoin’s price. The bankruptcy trustee still holds tens of thousands of coins that will need to be liquidated at some point in the future.
The DOJ Investigation
Although proponents of cryptocurrency point to the decentralization and lack of governmental oversight as being major plus points, there are many that believe the market has failed to properly regulate itself, and are calling for at least partial regulation.
As such, the Department of Justice and the Commodity Futures Trading Commission, which is responsible for the oversight of ICOs, will be investigating the possibility of illegal trading and misconduct by groups and individual traders within the market.