Justice Department launches probe into Bitcoin price manipulation, report claims

Internet forums are full of theories on who's pushing the price of Bitcoin this or that way, and they range from somewhat plausible to completely ludicrous. But could some of them be right?

The U.S. Justice Department has launched a criminal probe into whether the price of Bitcoin and other cryptocurrencies are being manipulated by traders, Bloomberg reported Thursday.

This manipulation can include practices such as spoofing (placing large numbers of buy or sell orders with no intent to fill them) and wash trading (simultaneously buying and selling the same asset to create fake volume on the market). You will rarely see these illegal methods used in established stock markets, but some may be using them to profit in the largely unregulated world of cryptocurrencies, teeming with millions of inexperienced traders.

According to the report, the Justice Department is working with CFTC officials on the investigation, which is said to be in its early stages. The investigation is reportedly focusing on Bitcoin and Ethereum, the two largest cryptocurrencies by market capitalization.

A recent analysis by investor Sylvain Ribes, for example, has shown that a large amount of volume seen on some popular cryptocurrency exchanges is likely fake and exists only due to practices such as wash trading. And a recent paper, published in the Journal of Monetary Economics, concluded that suspicious trading activity may have been responsible for Bitcoin's rapid jump in price from $150 to $1,000 in late 2013.

The price of Bitcoin has been on the decline since May 5, when it briefly hit $9,950, and is currently at $7,543. The market cap of the world's most popular cryptocurrency stands at $128.6 billion. Ethereum is following a similar trajectory. It's currently trading at $586 with a market cap of $58.4 billion.

Disclosure: The author of this text owns, or has recently owned, a number of cryptocurrencies, including BTC and ETH.