What Do We Know About the CFTC Price Manipulation Probe

On June 8, it was reported that the U.S. Commodity Futures Trading Commission (CFTC) demanded extensive trading data from several cryptocurrency exchanges in order to investigate whether there has been price manipulation in the crypto market.

Earlier, on May 24, Bloomberg reported that a criminal probe into Bitcoin (BTC) and Ethereum (ETH) price manipulation by crypto traders had been opened by the U.S. Department of Justice (DOJ) in conjunction with the Commodity Futures Trading Commission (CFTC). That information was indirectly confirmed in the recent Wall Street Journal report, although it was made clear that the DOJ was studying potential price manipulation in a separate case. In May, some mainstream players, including former Wall Street executive and billionaire investor Michael Novogratz, and Cameron of Winklevoss twins, president of the Gemini exchange, greeted the probe.

What provoked the CFTC investigation?

According to the Wall Street Journal, the probe followed the launch of BTC futures by CME Group, a major derivatives marketplace, in December 2017. CME generates its BTC futures prices based on data from four major crypto exchanges: Bitstamp, Coinbase, itBit and Kraken, where manipulative trading could potentially have altered the value of BTC futures.

After the settlement of the first contract in January, CME asked the four exchanges to provide trading data. However, several of the exchanges refused to cooperate, saying that the request was intrusive. The crypto exchanges only handed over their data once CME shortened the time window of its request from one day to a few hours, according to the Wall Street Journal’s sources. It was also reported that CME originally sought the information through a third-party — a London-based company that calculates the Bitcoin price to use for its futures contracts. The sources added that the crypto exchanges did not want to hand over data to the undisclosed British firm, which also runs its own trading platform.

CME is regulated by the CFTC, a federal agency dealing with futures and options markets in the U.S. The CFTC views Bitcoin as a commodity and is therefore subject to its direct supervision.

Thus, regulators from the CFTC were allegedly upset that CME does not have agreements which obligate crypto exchanges to share price data that is related to futures contracts. According to the Wall Street Journal’s sources, the quarrel between CME and the crypto exchanges led the CFTC to open an investigation.

Nevertheless, CME spokeswoman Laurie Bischel said that their London-based index provider has a disclosure agreement with all four exchanges:

“All participating exchanges are required to share information, including cooperation with inquiries and investigations.”

Kraken Chief Executive Jesse Powell told the Wall Street Journal that the “newly declared oversight” of how BTC prices form futures prices “has the spot exchanges [Eds: spot markets are non-futures exchanges] questioning the value and cost of their index participation,” while other exchanges declined to comment or didn’t respond at the time.

The Wall Street Journal article also mentions that the CFTC is coordinating their investigation with the U.S. Department of Justice (DOJ). As mentioned above, last month the DOJ opened a similar — but separate — investigation into BTC and ETH price manipulation.

But how can one manipulate BTC price?

The Wall Street Journal’s article mentions ‘spoofing’ as one of the examples of illegal trading schemes that are investigated by CFTC. The May report regarding the separate criminal probe launched by DOJ also listed &l