Earlier this week, Bloomberg reported on a Department of Justice (DOJ) and Commodity Futures Trading Commission (CFTC) criminal investigation into cryptocurrency price manipulation. The probe includes two of the world's most popular cryptocurrencies, bitcoin and Ether, though there may be others. The authorities are focused on rooting out illegal tactics, including spoofing (when a malicious actor submits fake trading orders) and wash trading (when a malicious actor trades with himself to entice others into a false market).
Now, it appears that the investigation is broader than was initially reported. On Friday, May 25, 2018, The Times – a daily newspaper in London – reported that American officials are examining bitcoin traders based in the UK and other countries, not just market participants located in the United States.
"The investigation can't have borders because the internet doesn't have borders," an unnamed source told The Times. "They're looking everywhere, at everything, and Britain is a massive market for crypto." The publication noted that South Korea has also been under the microscope.
The supposedly global nature of the DOJ-CFTC investigation is unsurprising. Over the last several months, government officials across the world have emphasized the importance of international cooperation to address the cryptocurrency markets. Last month, the governor of the French central bank, François Villeroy de Galhau, called for "internationally harmonized answers" to address the potential risks of cryptocurrencies. In February, European Commission VP Valdis Dombrovkis even raised the possibility of cryptocurrency regulation at the EU level. Clearly, regulators recognize that the cryptocurrency phenomenon (and its accompanying financial challenges) must be dealt with at a supranational level.
With that in mind, the focus on British bitcoin traders is particularly interesting because of the relative absence of European cryptocurrency regulation. The Financial Conduct Authority (FCA) has cautioned consumers about potential abuses in the cryptocurrency derivatives market and even issued a warning directed at cryptocurrency-based contracts for differences. But, while the regulator seems to have authority over cryptocurrency-based financial instruments, it does not necessarily have jurisdiction over the cryptocurrencies themselves (i.e., the spot markets). In April, the FCA explained that under the European Union's Markets in Financial Instruments Directive II (MiFID II), it does not consider cryptocurrencies to be commodities or currencies for regulatory purposes, but does believe that cryptocurrency derivatives may qualify as financial instruments.
It's not immediately apparent how the FCA will approach the cryptocurrency spot markets, or whether that would fall under the purview of another entity. Essentially, this puts the FCA in a similar position as the CFTC – with a measure of authority over the derivatives markets, but not over the underlying cryptocurrencies themselves. Even with the patchwork of guidance and regulatory standards for the cryptocurrency markets, authorities are obviously taking steps toward punishing fraudsters and cryptocurrency charlatans.
When reached by ETHNews, a DOJ spokesperson declined comment.