The government's investigation has been spurred on by fears that bitcoin futures on CME Group Inc.'s CME exchange have caused the price of the first and foremost cryptocurrency's futures to be manipulated - something which falls underneath the government's regulatory umbrella. Several exchanges chose not to comply, claiming CME's request was invasive.
Now there is no agreement legally compelling bitcoin markets to share trading data relating to futures contracts, such as time of trades, unfiled or canceled orders, order sizes, or trader identities, all of which would be required to carry out a comprehensive investigation. That request morphed into an investigation of the exchanges and their prices, and the CFTC is now working with the Department of Justice to ascertain if any wrongdoing took place. When CME amended its request to a few hours' worth of trading, the exchanges gave some data from a few participants. These agreements would detail what information needed to be shared, including traders' identities and the time of trades.
The CFTC, which had supported the bitcoin futures' introduction which they saw as risky but worthwhile, became frustrated and subpoenaed the exchanges.
In fact, CME is dependent on a third-part index data provider which receives market data, calculates the index price for Bitcoin, and routes it to the exchange. The department is said to be looking for ways in which traders can manipulate prices of cryptocurrencies through illegal activities like wash trading.
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This past week, he commented that the concerns over price manipulation are exaggerated, and that there wouldn't be enough of a gain to justify the risk. As such, it acts as if it had the authority to look over potential fraud in the cryptocurrency's markets, even if exchanges trading it aren't subject to the regulations futures markets face.
Bitstamp and Coinbase has not issued any comment.
Jesse Powell chief executive of the Kraken exchange told the WSJ that the "newly declared oversight" of how BTC prices form futures prices "has the spot exchanges questioning the value and cost of their index participation". Charles Cascarilla, the chief executive officer of Paxos, the company that operates Itbit, stated: "We have definitely entered an unknown area where it is clear there is a desire for tightened oversight".
The sources said there are various possible cryptocurrency trading schemes. Price fluctuation is high in this space while illegal trading is not a simple matter that can be pushed aside.
CFTC has gone on record stating that, the disciplinary action was on the significant denial of access over bitcoin trading data, and the creation of an atmosphere of "fight" among the stakeholders.