The CFTC has subpoenaed 4 cryptocurrency exchanges for their investigation into trading fraud in cryptocurrency markets. The subpoena is for the release of trading data to prevent of skewed prices in the CME Futures market.
Sources close to the matter spoke to Wall Street Journal on the issue, as this seems to be a continuing problem for CME. Last December, CME had requested data of the exchanges that provided the Bitcoin price for futures trading. These exchanges were Bitstamp, Coinbase, itBit, and Kraken. The exchanges did not comply with the request, quoting privacy and security concerns.
Reportedly, a limited amount of data was provided by the exchanges after CME restricted trading activities, forcing compliance. This raised concerns with the Commodity Futures Trading Commission, which directly regulates CME.
They believed that manipulation in exchanges could cause a skew in government-regulated markets. The CFTC considered the move into Bitcoin futures as “risky but worthwhile” according to sources.
Reportedly, CME did not have agreements that would allow for the sharing of trading data. These agreements would have resulted in the release of such data as time of the trades, unfilled or canceled orders, size of orders and traders’ identities.
CME acquired the data for the price of Bitcoin through a third-party firm that calculates the index price for Bitcoin. The index has an agreement with exchanges that allow for the exchange of data between the two.
This disagreement was allegedly a factor in the CFTC and United States Justice Department opening an investigation into market manipulation. This is especially relevant in the futures market, as investors bet on the price of Bitcoin in different time frames. CFTC and CME ensure individual trades don’t skew prices.
The probe aims to identify manipulative practices in the cryptocurrency market such as spoofing, which is the creation of fake buy or sell orders to create the illusion of supply and demand.
CME spokeswoman Laurie Bischel said:
“All participating exchanges are required to share information, including cooperation with inquiries and investigations.”
Bitstamp and Coinbase did not provide a comment. Kraken Chief Executive Jesse Powell said the CFTC’s “newly declared oversight” of the prices “has the spot exchanges questioning the value and cost of their index participation.”
“If there is any kind of attempted manipulation, whoever is doing it is taking a huge amount of risk for very little possible upside.”
Paxos Chief Executive Charles Cascarilla, which is the company behind itBit said:
“We have definitely entered an unknown area where it is clear there is a desire for tightened oversight.”
User c_r_y_p_t_ol said on Reddit:
“I don’t think it matters at all. The investigation is focused around so called “spoofing” and “wash trading”. I am no expert but maybe it really makes a difference in penny stocks and similar markets. In crypto it simply does not matter. Everyone got used to that. Any idiot with money can put a wall. But (1) normally no one cares (2) anyone can dump (or buy) into that wall. Which often really happens. And anyone can wash-trade a wall. But again, no one cares.”