US commodities regulatory body CFTC would join the US Justice Department in criminal investigations against pot Bitcoin markets over allegations of price manipulation by the Chicago Mercantile Exchange (CME). The investigation started after CME launched bitcoin futures contracts.
The dispute saw the regulator launch an investigation into whether traders were colluding to manipulate bitcoin's price. Several exchanges chose not to comply, claiming CME's request was invasive. The issue of the legal instrument to these exchanges makes it compulsory for them to respond with necessary data.
Now there is no agreement legally compelling bitcoin markets to share trading data relating to futures contracts, such as time of trades, unfiled or canceled orders, order sizes, or trader identities, all of which would be required to carry out a comprehensive investigation. Such an agreement would have detailed the type of trading information the CME would have received, including traders' identities, the time of trades, canceled or unfilled orders and size of orders.
CME approached a third-party company to calculate the bitcoin futures price, the sources said. CME compiles trading data from four major exchanges to derive the final value. The department is said to be looking for ways in which traders can manipulate prices of cryptocurrencies through illegal activities like wash trading. People who know the matter well told the Journal that CFTC was carrying the investigation together with the US Department of Justice.
On Sunday, June 10, the price of Bitcoin took a nose-dive as the cryptocurrency corrected by more than 10 percent breaking its crucial resistance of $7000 levels.
Bitcoin Price Manipulation Probe Linked to Futures Market
The lack of an enforceable agreement between CME and the exchanges allegedly vexed the CFTC.
Jesse Powell, Kraken's chief executive, released a statement Friday claiming that the CFTC's "newly declared oversight" is causing the exchanges to question their index participation. "If there is any kind of attempted manipulation, whoever is doing it is taking a huge amount of risk for very little possible upside". Criticizing the strong action, Paxos (which own ItBit) CEO, Charles Casarcilla says, "We have definitely entered an unknown area where it is clear there is a desire for tightened oversight".
At the time, Attorney General, Eric T. Schneiderman had said, "With cryptocurrency on the rise, consumers in NY and across the country have a right to transparency and accountability when they invest their money". Price fluctuation is high in this space while illegal trading is not a simple matter that can be pushed aside.
Four major bitcoin exchanges have been ordered to turn over comprehensive trading information to US government investigators, following fears of bitcoin futures-driven market manipulation.
According to crypto news portal, Bitcoin News, since bitcoin is counted as a commodity, it technically falls under the CFTC's jurisdiction.