An official from the SEC has aired concerns about manipulation in the cryptocurrency market, citing the possibility of pump-and-dump schemes in a market difficult to police.
An official at the US Securities and Exchange Commission (SEC) has voiced concerns that market manipulation could become rampant in small-scale cryptocurrency spaces.
“We are concerned about a lot of the issues around manipulation, whether it’s spoofing, or any other forms of market manipulation that are out there. Spoofing, front running, wash trading, pump-and-dump, insider trading — there’s a question of, how are they being watched out for?” SEC trading division head Brett Redfearn told Bloomberg.
The regulator currently has no one seriously patrolling the cryptocurrency market to try and spot bad actors.
This lack of policing can be attributed to the fact that it is virtually impossible to trace the identities of people behind pump-and-dump schemes with smaller cryptocurrencies.
The above is especially true if the people behind such schemes have not registered with an exchange, possibly bypassing KYC protocols for their wallets at some point.
Even then, it is quite possible that one could run it all through another wallet not tied to any exchange. This makes the job of law enforcement tough, to say the least.
It is probably why the Winklevoss twins, who currently run the Gemini exchange, have been pressing the industry to police itself and thus help law enforcement track down bad actors.
The problem with this is that the most egregious schemes are not run on large cryptocurrencies like Bitcoin or Ether, but smaller ones that have yet to register on everyone’s radar.
That is not to say Bitcoin has never suffered manipulation. A report published by Tel Aviv University in collaboration with the University of Tulsa revealed earlier this year that Mt. Gox’s platform was rife with manipulation.
Before suffering the biggest ever theft in terms of the number of Bitcoin stolen, Mt. Gox used fake accounts and fake transactions to bolster Bitcoin’s trading volume, making it appear to be worth more than its real nominal value.
While such manipulation would be much more difficult to execute these days, it is still worth keeping an eye on the moves that major players in the cryptocurrency world make to ensure they are playing fair.
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