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How can criminals manipulate cryptocurrency markets?

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How can criminals manipulate cryptocurrency markets?

Postby MrFredPFL » Sat Jun 02, 2018 10:04 pm

Story :

Cryptocurrencies like bitcoin are based on systems that are supposed to be inherently protected from fraud. Yet the U.S. Department of Justice has opened a criminal investigation into manipulation of bitcoin prices. How is that sort of activity even possible?

Some of the problems the Justice Department is investigating appear to have arisen because bitcoin enthusiasts are not treating cryptocurrencies as a means of payment like dollars. Rather, they’re behaving as if bitcoins and their ilk are speculative assets like stocks and bonds. So they’re placing orders to buy bitcoin in advance, only later completing the deal. One type of fraud investigators are looking into is called “spoofing,” in which people place orders but cancel them before the deal is finalized – often without even having to pay a service fee. That makes it look like there’s more demand for bitcoin than there actually is, driving up the value of each bitcoin.

That sort of manipulation is possible with almost any type of asset. Bitcoin is more susceptible than stocks or bonds because so few people hold large amounts of bitcoin. The largest 1,000 bitcoin accounts hold 40 percent of all the bitcoins in existence – with almost 20 percent held in just 100 accounts.

Many of the people who own large amounts of bitcoin have been in the cryptocurrency community for a number of years and know each other. They can take coordinated actions to increase or decrease prices – and because there’s no real regulation of cryptocurrency markets, it might not even be illegal for them to do so.

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