The DOJ announced that they would be investigating cryptocurrency trading yesterday, specifically related to manipulation.
The official release from bloomberg can be seen here:
"Bitcoin", "manipulation", and "investigation" all mentioned in the same sentence?
On first thought, that sounds bad!
However, it may not be as bad as it sounds...
Here are some of my thoughts:
First, how exactly is the DOJ going to police something that trades on global markets?
Last time I checked they were a US based agency and these things are traded globally.
Perhaps they can police the local US based exchanges and make sure that nothing nefarious (at least in their eyes) is going on there, but what happens when the biggest exchanges are overseas and prices are being artificially run up or suppressed there?
In most cases prices gravitate to wherever the most volume is.
Which means, that if they run prices up on say one of the largest Asian exchanges, prices on US exchanges would likely soon follow.
How is the DOJ or the SEC going to police that?
Also, lets say there was some "manipulation" taking place, what rule exactly is being broken?
Bitcoin is not registered with the SEC, or with the CFTC, or any other regulatory body.
There are no rules and regulations in place to regulate the bitcoin market which means what "rules" would price manipulation technically be breaking?
How can you punish someone for breaking a rule that technically doesn't even exist for that market?
To me, it sounds like something along the lines of this is the end goal:
"The goal is to replace illegal manipulators with legal ones."
But now, it's legal!
Is news of regulation even bad in the first place?
All that being said, lets say that they do find a way to police US based markets in a way that prevents much of the undesired trading activities from taking place, perhaps with the help of coordinated efforts globally...
Is that really such a bad thing?
On the whole, many in the finance industry are saying that is one of, if not, the biggest reasons institutional money is not investing in the space currently.
They don't want to be investing in a space that is said to be gamed or rigged.
Which means, if regulators "clean up the space" that could remove one of the major hurdles for a whole host of new money to come flooding in.
All that being said, there may be some major growing pains as the industry gets "cleaned up" and becomes seen as more a legitimate asset class by institutional investors, which is what we are likely seeing right now.
To recap:
It's going to be very difficult to police a globally traded asset like bitcoin.
However, if they do succeed, it will likely open the floodgates to institutional investors.
There may be some growing pains in the process, which we are likely going through now.
On the whole, this news is likely a net positive.
Stay informed my friends.
Image Source:
https://www.ccn.com/dojs-bitcoin-price-manipulation-probe-a-good-thing-mike-novogratz/
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