Peter Tchir, who is a trader and macroeconomist, has said that he would be ‘shocked’ if Bitcoin prices are not being manipulated.

In his column for Forbes, Tchir cited the Financial Times and Bloomberg for reporting that the Department of Justice has opened a criminal probe investigating if traders have been manipulating the price of Bitcoin and other digital currencies.

Tchir States Reasons Why Bitcoin Prices Are Likely Being ‘Manipulated’

Tchir, whose LinkedIn profile lists him as the Head of Macro Strategy at Academy Securities, stated three main reasons that led him to believe that there is ongoing Bitcoin price manipulation:

  1. Supply Concentration. Tchir noted that there is, allegedly, a small number of people who hold a disproportionately large amount of Bitcoin and other cryptocurrencies. These people have natural incentives to push prices higher. However, unlike the regulated stock market where large shareholders are subject to additional regulations and scrutiny, there are no such rules when it comes to cryptocurrencies.

2. Miner Incentives. He also shared that miners, who may also hold significant positions, would also want prices to increase.

3. Price Arbitrage. Here, Tchir drew a parallel to price manipulation in the regulated LIBOR and FX markets, which have resulted in legal action. Tchir speculated that traders who took the time to set up accounts on different exchanges to arbitrage price differences are rewarded.

Despite his conviction from the mentioned reasonings, Tchir was careful to state that any manipulation of cryptocurrency prices may or may not meet the legal definition of manipulation. In closing, Tchir said that, as investigations proceed and expose more issues with cryptocurrencies, he expects their prices to continue to fall.

Spoofing and Wash Trading: Two Illegal Practices the DOJ is Investigating

While the DOJ’s probe is still private, sources familiar with the matter have reported to Bloomberg that authorities are focusing on two particular practices that traders may be using to manipulate prices: spoofing and wash trading. The DOJ is also collaborating with the CFTC in its investigation.

Man with golden Bitcoin. Source: Shutterstock
A man with golden Bitcoin. Source: Shutterstock

Spoofing is the practice of flooding the market with fake orders to influence other players into buying or selling. These orders create an illusion of interest in a particular commodity but are canceled before execution. In regular financial markets, spoofing is typically conducted using high-frequency trading algorithms.

The use of spoofing was linked with the 2010 flash crash of the stock market. So far, only one trader, Navinder Singh Sarao, has been charged. Notably, the charges came in 2015 — five years after the incident. He has since pleaded guilty to charges of spoofing and could face up to 30 years in prison.

Wash trading, on the other hand, is the practice of buying shares through one broker followed by immediately selling shares through another broker. Also known as round-trip trading, it is illegal under the Commodity Exchange Act, which was passed in 1936.

While the DOJ investigation is still in its preliminary stages, it does represent a continuation of the U.S. authorities’ crackdown against illegal practices in cryptocurrencies. The SEC has stepped up its enforcement against fraudulent ICOs, having recently come down on Centra Tech and Titanium Blockchain.

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