Bitcoin and Other Cryptocurrencies

The Commodity Futures Trading Commission (CFTC) regulates and oversees futures transactions involving digital currencies such as Bitcoin. The CFTC and the Department of Justice are investigating whether traders are manipulating the price of Bitcoin and other digital currencies. The investigation is focused on illegal practices that can influence prices.  One area of concern for government regulators is a practice known as spoofing where fraudsters flood the market with fake orders in order to induce other traders to buy or sell.

Bitcoin was the first cryptocurrency, a form of electronic cash. It was invented by an unknown person or group of people using the name Satoshi Nakamoto and released as open-source software in 2009.  Bitcoin is a decentralized digital currency without a central bank or single administrator. Transactions involving Bitcoins take place directly on the peer-to-peer Bitcoin network, without the need for intermediaries. Bitcoins can be exchanged for other currencies, products, and services.

While Bitcoin is the original and largest cryptocurrency, new digital currencies are launched to investors about once week on average, and often enter the market through an Initial Coin Offering or ICO.  Based on market capitalization, Ethereum, Ripple, Bitcoin Cash and EOS are the largest cryptocurrencies after Bitcoin. In the first study to benchmark global cryptocurrency, the University of Cambridge estimated that the combined market value of all cryptocurrencies was $27 billion as of April 2017.

The CFTC has been actively pursuing individuals and entities that have engaged in misconduct related to cryptocurrencies. In one case, the CFTC brought suit in federal court against a UK-registered company and its US-based owner. In July 2018, the court found that neither the company nor the owner ever registered with the CFTC in any capacity. The defendants engaged in a fraudulent scheme through which they solicited nearly $500,000 worth of Bitcoins from at least 127 members of the public. The investors were promised that their Bitcoins would be converted into fiat currency and pooled into an investment vehicle for trading commodities. The prospective investors were solicited through company websites, YouTube videos, and Facebook posts. The defendants made false claims in their solicitations concerning their trading expertise and promises of high rates of return. The defendants never converted the Bitcoins or made the investments as promised. Instead, the funds of least 120 investors were misappropriated resulting in the loss of almost of the investors’ funds.

The defendants were found liable jointly and severally, and ordered to pay more than $432,000 in restitution to customers as well as a civil monetary penalty of nearly $1.5 million. The court also imposed permanent trading and registration bans on the defendants, and permanently enjoined them from further violations of the Commodity Exchange Act and CFTC Regulations.

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