Justice Department Probing Possible Cryptocurrency Market Manipulation

Justice Department Probing Possible Cryptocurrency Market Manipulation

By Benson Toti - min read
Updated 21 March 2023

The US justice department has opened a criminal probe over possible manipulation of bitcoin prices. According to Bloomberg, the investigation is focussing on illegal activities such as spoofing and wash trading used to influence prices.

The probe is reportedly being carried out in collaboration with the Commodity Futures Trading Commission (CFTC). CFTC issued an advisory recently providing guidance on the listing of virtual currency derivatives. The body provides oversight over virtual currency futures markets.

Department of Justice

CFTC subpoenaed Bitfinex and Tether over similar claims last year. Tether issues a stable coin by the same name which it claims is backed by US dollar reserves.

This comes only days after the North American Securities Administrators Association (NASAA) announced they were carrying out investigations on unregistered securities targeting initial coin offerings.

Pump and dump schemes were common when the market was just taking off.

Losing Streak

The cryptocurrency market has been losing recent gains in the wake of the revelations. Bitcoin is now trading at $7370 on Bitfinex. The leading cryptocurrency peaked came close to $10,000 after peaking at $9934 on May 6 and ending an unexpected rally that lasted a month.

Prices had however managed to stay above the $8000 level before a steep decline started on Tuesday.

Allegations over market manipulation have been around ever since the dramatic rise in bitcoin and other cryptocurrencies in December and the sudden fall in value starting February.

Recent analyses have however attributed the declining market to the introduction of bitcoin futures contracts which allowed more “pessimistic” traders to short the market.

Market Manipulation

Spoofing is one popular way of manipulating the market. In this method, rogue traders make bids or offers with the intention of cancelling them before they are filled.

This creates a false impression that the market is moving in a particular direction and in the process attracting high frequency traders. The spoofer can then time when to buy or sell. Spoofing creates false pessimism or optimism and is illegal.


Wash trading is another method where a trader creates a false impression by simultaneously buying and selling a financial instrument.

The cryptocurrency market is largely unregulated making it a prime target for manipulation. The relatively small market capitalisation compared to say the forex market means that sentiment can easily be swayed.

Cryptocurrencies are characterised by wild price swings. Bitcoin is now trading at almost a third of its peak value of nearly $20,000 in December 2017.

The virtual currency started 2017 trading at just $1000.

Regulatory Concerns

The high volatility has raised regulatory concerns across the globe. Japan and South Korea allows cryptocurrency trading but under a tightly controlled environment that includes regular inspections.


Some countries like China has banned cryptocurrency trading altogether. Other jurisdictions like Malta are going the opposite direction by putting in place friendly legislation to attract cryptocurrency businesses.

France has also announced plans for friendly legislation that will create a conducive environment for initial coin offerings.

Gemini, a cryptocurrency exchange owned by the Winklevoss twins has been taking steps to identify market manipulation when it happens. Last month it  announced it was deploying Nasdaq’s market surveillance technology.