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As bitcoin plunges, the feds are looking into whether its rise was artificial

As bitcoin plunges, the feds are looking into whether its rise was artificial
[Photo: Christopher Burns/Unsplash]

If you’re a cryptocurrency investor, you’ve probably not been too happy for the last few days. Bitcoin has been on a downward spiral; it hit a 13-month low yesterday, only to go lower today. The price once nearly topped $20,000. Today people are bracing for it to plunge below $4,000. Other coins like ethereum and litecoin have been falling, too. What a difference a year makes!

And if you were to transport yourself back to a year from now, you’d be in the midst of the bitcoin rally. The value of the digital coin was growing rapidly, as was cryptocurrency enthusiasm. But investigators are reportedly looking into whether this initial rise was artificially made–and they are supposedly digging into a connection with another cryptocurrency that may be at the heart of the matter.

According to Bloomberg, the U.S. Justice Department has been focusing on the digital coin tether. Tether–a coin whose value is supposedly tethered to the U.S. dollar–has the same management team as the crypto-exchange Bitfinex. And the investigators are reportedly looking into whether tether was used to buy bitcoin as a way to artificially inflate the price during its monumental peak.

This investigation has been going on for months, but this latest development puts the crosshairs on this one cryptocurrency and the organization behind it. Bloomberg writes:

A focus of the Justice Department’s investigation is whether the dramatic rise of digital tokens in recent years was purely driven by actual demand, or was partially fanned on by market tricks. Along with the CFTC, prosecutors have been looking into a number of trading strategies, including spoofing–the illegal practice of flooding the market with fake orders to trick other traders into buying or selling.

A paper released earlier this year, tied tether to a possible price manipulation. It seems the feds are following this lead. Bitfinex has always denied having any role in artificially increasing the price of bitcoin. I reached out to the company for comment about this latest development, and will update this post if I hear back.

For now, we’ll wait to see if there’s a bottom to this bitcoin free fall. And investors will likely be trying to follow this investigation, as it may prove that they placed their money into a fake phenomenon.

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