Bitcoin Retracts to Near $7,000 After U.S. Department of Justice Launched Probe into Price Manipulation: Week in Review May 29
In the past week, we witnessed the price of bitcoin dropping by 14 percent from $8,500 to $7,300 after the U.S. Department of Justice (DoJ) announced that is has launched a criminal probe into possible bitcoin price manipulation.
The DoJ wants to find out whether traders are manipulating the price of bitcoin and other crypto assets through tactics such as order spoofing and flooding the market with fake orders to entice others to trade on these movements in the order books.
Anyone who has ever spent time actively trading crypto assets or just spent time observing order books at large digital asset exchanges knows that the cryptocurrency market is still the “wild wild west” and price manipulation is omnipresent.
While the market reacted negatively to this news, cleaning up bitcoin changes to make digital assets safer to trade for investors may turn out to be price positive in the long-run as it could attract more investors to this new digital asset class.
Leading altcoins have followed suit and are down by ten to 20 percent week-on-week. Only TRON (TRX) managed to stay flat versus last week’s close.
The U.S. Department of Justice (DoJ) has been keeping an eye on the alluring volatility of the price of bitcoin, with reports emerging of a launch of a criminal probe for price manipulation on exchanges.
Bloomberg reported May 24, 2018, the DoJ is not amused by bitcoin’s price swings, and is on the lookout for traders who dramatically influence the cryptocurrency market, which they state is “rife with misconduct.” The digital currencies under examination include bitcoin and ether.
The department has ordered for a thorough scrutinization of exchanges and traders, in a bid to find the origin of fraudulent market activities, such as “spoofing,” fake market orders, and other types of manipulation.
Federal prosecutors and representatives of the Commodity Futures Trading Commission (CFTC), an authority that oversees the cryptocurrency market, will lead the investigation.
According to a report, the Indian government may impose an 18 percent GST on crypto-trading. Currently, this proposal is being considered by the Central Board of Indirect Taxes and Customs and is expected to be tabled before the GST Council once it is finalized.
It is also expected that cryptocurrencies could be classified under the category of “intangible goods,” such as software, and its use in illegal activities will have to be dealt with separately, under special criminal laws.
However, all is not concrete, as the decision to tax cryptocurrencies will also depend on the outcome of the panel set up to find a way to regulate them. It is expected that while the Department of Economic Affairs seeks to regulate virtual currencies, investigative agencies want a ban.
Earlier in April 2018, the Reserve Bank of India (RBI) had already barred lenders from dealing with enterprises dealing in cryptocurrencies and gave them an ultimatum of three months to unwind their businesses, rendering the first week of July 2018 as a death knell for Indian cryptocurrency traders. As per the dictum, banks were explicitly asked to withdraw all banking services for exchanges, thus cutting off the money supply.
According to an official report by Russia’s lower house of parliament, the first draft of the new laws defining cryptocurrencies was approved by a majority, on May 22, 2018. A total of 410 deputies approved the bill, and only one voted against it.
The draft specified treating cryptocurrencies and digital tokens as a property, alongside introducing laws for all activities on digital assets and blockchain technology, such as mining, ICOs, and wallet services. Explaining the motive, the bill stated that digital tokens and cryptocurrencies are issued by a single entity, or a variety of entities, and contain “emission goals.” The bill added: “In this document, it is directly determined that digital financial assets do not constitute a legal method of payment within the territory of the Russian Federation.”
Titled “On Digital Financial Assets,” the bill has been under consideration since 2017, and seemingly adheres with its July 1, 2018 deadline.
The Digital Currency Initiative (DCI), a cryptocurrency and blockchain-focused research community at MIT, are demonstrating an experimental use case in the backdrop of Bitcoin’s Lightning Network that would amalgamate smart contracts with the Bitcoin network to scale further.
The Lightning Network is an open protocol layer that is built on the bitcoin blockchain network, enabling faster and cheaper transactions. The new MIT pilot is not just limited to manage millions of transactions but to make it possible with added complexity.
The MIT test envisages a mechanism wherein transactions would occur automatically when certain defined conditions are met such as when the U.S dollar value meets a predefined price.
To make it possible, DCI’s Research Scientist Tadge Dryja and Head of Strategic Partnerships Alin S. Dragos developed “oracles” that would relay data to smart contracts. The demo is built as an independently operating feature of the Lightning Network software, first proposed in summer 2017.
Bitcoin Private Co-founder and cryptocurrency maverick, Rhett Creighton has leveled a series of remarkable allegations of theft, incompetence, mismanagement, and cover-ups against his former team in a blog post published on May 23, 2018.
Creighton has been engaged in a public feud with the Bitcoin Private team since he was reportedly fired in April 2018. The allegations made by him range from the relatively minor such as incompetence and infighting to severe accusations including mismanagement of Treasury funds, fraud, bribery, and several coverups to prevent information from reaching the BTCP community.
Creighton alleges that BTCP Strategy chief, Giuseppe Stuto accidentally paid 5.5 BTC to a developer Jon S. Layton when he intended to pay 0.55 BTC. In a series of screenshots posted showing the conversation between Stuto and Layton, Stuto repeatedly requested Layton to return the 5 BTC overpayment, and Layton shamelessly refused.
Furthermore, Creighton tweeted an allegation stating that he was offered a bribe of 100,000 BTCP to enable Stuto and Brutman steal BTCP coins by writing fraudulent commits in the course of a coin burn. Both Stuto and Brutman have publicly denied the allegation, endorsing a tweet stating that Creighton is looking to take revenge on the team for removing him.
Even with the reign of the bear market, it seems more and more financial institutions are seriously looking to join the bitcoin train. On May 24, 2018, Frankfurt-based Deutsche Borse AG has hinted it’s weighing the possibility of offering clients bitcoin and other crypto-related products.
According to Bloomberg, the highly-reputed stock exchange has noted a more liberal approach towards bitcoin and other blockchain-based virtual currencies. Present at an industry event in London by the Association for Financial Markets in Europe (AFME), the company’s head of clients, products, and core markets, Jeffrey Tessler, noted that the firm is carefully studying bitcoin and the underlying technology:
“Before we move forward with anything like Bitcoin we want to make sure we understand the underlying transaction which isn’t the easiest thing to do. We are deep at work with it.”
The former Executive Vice president of the Bank of New York also hinted that the super volatile nature of the world’s flagship cryptocurrency, as well as the regulatory uncertainties surrounding the nascent digital assets industry, makes it crucial to study the ecosystem extensively before jumping in.
According to the Polish Press Agency (PAP), the Ministry of Finance has deemed it necessary to suspend the crypto tax law as it has realized that the guideline is nonsensical. Amidst this backdrop, the Polish Finance Ministry plans to formulate another regulation after conducting an “in-depth analysis“ of the virtual currency industry.
“The Ministry of Finance has accepted the irrational effect of the PCC tax on cryptocurrencies,” said Deputy Finance Minister, Pawel Gruza, adding: “So far, the Ministry hasn’t done anything about the PCC, except for recognizing cryptocurrencies as property rights which automatically means obligation to pay the civil law transaction tax.”
The Polish government’s decision to review the cryptocurrency tax regulation did not just happen ordinarily. In April 2018, the Ministry of Finance issued a notice, stating that all digital currency transactions attract an income tax of either 18 or 32 percent, plus an additional one percent levy tax since the government sees cryptocurrency trading as a transfer of property rights.