US Justice Department Investigating Illegal Bitcoin Pumping tied to Tether
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US Justice Department Investigating Illegal Bitcoin Pumping tied to Tether

As of November 20th 2018, the US Justice Department is reportedly investigating illegal Bitcoin pumping during its massive surge in late 2017. Academic research findings from individuals at the University of Texas suggest that Tether and Bitfinex show trading activity suggestive of significant manipulation during Bitcoin’s sudden surge.


Federal prosecutors from the United States Justice Department are investing whether traders used Tether to manipulate Bitcoin’s drastic rise to around $20,000 in late 2017.

The investigation has reportedly centered around Bitcoin, Tether, and cryptocurrency exchange Bitfinex.

Tether Ltd. and Bitfinex both share the same Hong Kong-based management team and CEO, J.L. van der Velde.

Research published by a finance professor from the University of Texas was the first to note a potential connection between Tether and Bitcoin.

How Tether is Related to Bitcoin’s 2017 Massive Spike

In June of 2018, Professor John Griffin along with co-author Amin Shams released their findings after sifting through 2 terabytes of trading data— a volume equal to 10% of all text in the United States’ Library of Congress.

The research suggested Tether was used to purchase Bitcoin during crucial moments, which accounted for nearly half of Bitcoin’s 1,400% gain during the surge.

According to Griffin,

“The data leaves footprints, and it leaves tracks. And sometimes it speaks.”

Griffin went on to share his findings with the Commodity Futures Trading Commission (CFTC).

The Investigation into Illegal Bitcoin Pumping Explained

The research of Griffin and Shams has apparently received serious attention. Both the Justice Department as well as the CFTC are currently examining whether Bitcoin’s rise was the result of actual market demand, or illegal pumping.

The prosecutors have repeatedly looked into several trading strategies, to include spoofing— an illegal practice where fake orders inundate the market to manipulate other traders to buy or sell.

Tether has a reputation for being used by traders to bet on the price movements of other cryptocurrencies. As a ‘stablecoin’, it is theoretically tied— or ‘tethered’— to the USD, thereby circumnavigating the notorious volatility seen in the cryptocurrency market.

Another part of the investigation deals with Tether’s production in relation to Bitfinex. The Justice Department is reportedly looking at how Tether creates new coins and why they primarily enter the market through Bitfinex.

It is important to note that as of now, no official accusation has been released.

J.L. van der Velde, CEO of both Tether Ltd. and Bitfinex, has disputed the research findings behind the ongoing investigation:

“Tether issuances cannot be used to prop up the price of Bitcoin or any other coin/token on Bitfinex.”

The Justice Department is not the only federal agency with increased activity as of late. Just last week, the SEC imposed the first-ever penalties for ICO securities registration violations. In the weeks before, it charged EtherDelta’s founder with operating an unregistered securities exchange and reportedly investigated cryptocurrency custody-related services.

Some feel as though the increased regulatory activity is likely to push the unregulated cryptocurrency market towards the quickly emerging security token industry. Security tokens involve the tokenization of regulated securities. The process of tokenization must therefore transparently demonstrate regulatory compliance. As such a task looks to become an emerging issue in the traditional cryptocurrency market, it is not a worry for compliant security tokens.

How the action will play out however, is set to unfold in due time.

What do you think about the current investigation into illegal Bitcoin pumping? Will the investigation produce anything of interest? Let us know what you think in the comments below.


Image courtesy of the United States Department of Justice.

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November 23, 2018

About Author

SiaMohajer Sia Mohajer is the cofounder of The Tokenist and Coin Crunch. Sia founded Next Ventures in 2013. He believes in a decentralized future and a new era in global finance.