Bitcoin traders in Britain are being investigated by American justice officials as part of an inquiry into criminal price manipulation in digital currency markets.
The US Department of Justice is examining trading in Britain, America and other countries amid concern that individuals or groups are illegally moving digital currency prices to the detriment of other investors, sources said.
Cryptocurrencies such as bitcoin exist only as strings of computer code and have no physical form. Most were launched with the goal of becoming decentralised currencies over which regulators could exert no control. Their popularity exploded last year, with the price of bitcoin rising from $960 in January to a peak of almost $20,000 in December.
Consumer and financial watchdogs have long warned investors off digital currencies and have cracked down on companies that offer investing services deemed too good to be true. The prices of digital currencies often swing wildly and without explanation, but little action has been taken to examine price manipulation.
Two sources with knowledge of the investigation said that digital currency traders in Britain were a focus of the inquiry. One source said: “The investigation can’t have borders because the internet doesn’t have borders. They’re looking everywhere, at everything, and Britain is a massive market for crypto.” South Korea was also under scrutiny.
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American officials are examining whether individuals or groups of digital currency traders are employing a tactic known as “spoofing”. This involves flooding the market with buy orders or sell orders artificially to push the price of a digital currency up or down and then cancelling the orders after profiting from the price swing.
Officials are also investigating allegations of “washing”, whereby individuals or groups trade with themselves to give the impression that there is demand in the market for a particular digital currency.
Prices of cryptocurrencies fell yesterday after details of the US investigation were reported by Bloomberg. Bitcoin was down by 5.1 per cent to $7,518.19, with ether, the second largest digital currency, off by 6.8 per cent to $581.28 and XRP, the third biggest, down by 2 per cent to $0.61.
Claims about price manipulation in digital currency have swirled for years but there has been little hard evidence that trading conspiracies exist.
Regulators are hampered by the fact that digital currency trading is almost completely anonymous and trades can be executed from anywhere in the world at any time of the day. An individual or group of traders called “Spoofy” are thought to have placed millions of dollars’ worth of orders on Bitfinex, the Hong Kong-based digital currency exchange, the world’s biggest, without executing them.
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Research suggests that about 1,000 people hold 40 per cent of all bitcoins, giving these individuals power to move the market if they choose. Many are believed to have known each other since the early days of the currency, which was launched in 2008.
The value of all bitcoins in circulation was $128 billion yesterday, compared with about $200 billion at its peak last year. There are about 1,600 digital currencies in circulation with a combined value of $331 billion, figures from Coinmarketcap, the data provider, showed.
The Department of Justice declined to comment.
