The government finally decided to began a crackdown on the market for cryptocurrencies and digital tokens. In recent week the Justice Department joined in a Commodity Futures Trading Commission Probe for the manipulation of the Bitcoin market. The exchange commission and the securities issued the statement explaining that its enforcement efforts were focused on initial coin offerings which are considered to be the securities that require registration and compliance with disclosure rules.
The C.F.T.C’s with the justice department started investigation focused on whether the cryptocurrency Tether issued by Hong-Kong company where it can be used to drive up Bitcoin’s value through well-timed trades. It surged around 2000%in 2017 and it reached peak nearly to $20,000 where it can tumble more than 80% this year. There is one advantage for the federal prosecutors in the investigation of the manipulation of Bitcoin which states that they can use the fraud wire statute to prosecute any scheme involving property which includes intangible property like cryptocurrency.
In a study made by two finance professors at the University of Texas, the connection between Tether and Bitcoin was first noted. They pointed out that “Trading on unregulated exchanged specifically the cross digital-currency exchanged that could leave cryptocurrency vulnerable to gaming and manipulation.
The new penny stock?
The price of bitcoin has experienced both sides and has significant growing pains where a question arises whether cryptocurrencies are a new form of penny stocks which hold great value. Penny stocks are really cheap and are not closely followed by analysts but are thinly traded. Whether true or not there is a good news which is that the stock price can be doubled or tripled overnight and that is when those in the control of stock can dump their shares and leave with a hope of getting a big thing next time with losses.
Cryptocurrencies are subject to many of the same issues as penny stocks. All most all of the trading happens on a regulated overseas platform. While many call themselves “exchanges” as they provide virtually none of the protections that are afforded to investors in stocks and bonds. There is no clear record of the transactions to manipulate the prices and that may not be difficult for sophisticated participants who are waiting for the pump up in the price.
The S.E.C issued its statement last month which settled with two cases with issuers of digital tokens for violation of securities laws, asking them to pay penalties of $250,000 each and are supposed to work to refund money to investors in their illegal offerings. Same like that Maksim Zadlavskiy was charged with criminal security frauds who were involved in ICO. This was the first case where the judge found that the digital coins are one kind of security and then subjected to the antifraud rules.
The S.E.C filled a case against Zachary Coburn the founder of EtherDelta Company that facilitates trading in digital coins as it is operated as an unregistered national security exchange. And for those looking to offer a trading platform in the United States in registering with S.E.C as an exchange is a too expensive and time-consuming process. Within the end of the month, the S.E.C settled charges with the boxer Floyd Mayweather Jr. and Khaled Khaled who is the music producer known as DJ Khaled for the promotion of digital tokens issued by Centa Tech, a startup company. Men among them did not disclose about the payment received for making online postings that hyped the digital coin said the regulators and Mr.Mayweather agreed to give back $300,000 which he received and pay an additional payment pf$300,000 penalties.
The crypto slowdown
Before the government began its crackdown there was a big sign which euphoria was evaporating from the market. Additional digital tokens were generated as there was a decline in the cryptocurrency “mining”. There was a continuous bitcoin price drop and so Giga Watt a digital currency mining operation in Washington State filed for bankruptcy. The graphic chips are made by Nvidia which is very important for mining cryptocurrency.
Much like tulip mania in the 17th century Holland, there is an anticipated end of a speculative bubble for the naysayers of cryptocurrencies and initial coin. which does not mean that this kind of investment will go disappearing but the government security will raise the costs for trading platforms and effectively eliminate initial coin offering if they are to be registered with the S.E.C.
The underlying technology for cryptocurrency is the Blockchain which is useful and seems to disappear. But cryptocurrency survives as a viable means of conducting business in a different question. There comes technical problems that make their tokens hard to use in the real world transactions and those working on the cryptocurrencies have promised solutions.
Similar to penny stocks digital tokens have seen their fair share of scam artists. As the government puts up more resources in making the trading of digital assets. The decline in cryptocurrency waits for the right time when there are greater protections for investors.