Regulation and Fraud: What Have We Learned From The Latest Bitcoin Crash?

The Latest Bitcoin Crash Was Entirely About Regulation and Fraud

Cryptocurrencies have experienced a stressful month. The Bitcoin value plummeted to only 50% of its 2017 ultimate, and other currencies like Ripple, Litecoin and Ethereum have gone through two-figure losses in contrast to their peaks from the previous year. Tuesday also saw the fall of BitConnect, a crypto exchange that is secretly run which had been accused numerous times of operating a Ponzi scheme through its registered Bitcoin Cash currency. When combined, these happenings might serve as one more notice of how  ‘unpredictable’ the cryptocurrency market is, which witnessed Bitcoin increase to a high of $19,783 on 17^th December. Bitcoin has experienced many declines in the past: in 2011 during spring, in November 2013 as well as in January 2017.

But, this present bubble has occurred in the middle of a new situation: a global flow of regulation against the growing cryptrocurrency sector. On one side, these regulations might be frightening Bitcoin investors into trading their coins today, before the entire effect of regulation is felt. On the opposite side, it may also be threatening suspicious exchanges like BitConnect. Its token had a 46% reduction in value between 17^th December and 15^th January, a day before it declared its closure.

The Bitcoin Value Reduced to only 50% of its 2017 high

In the U.S. regulation has appeared as the SEC. The previous month, its Cyber Unit, which was set up recently, for the first time pressed charges against PlexCorps. It was alleged that it defrauded investors via a dubious ICO (Initial Coin Offering). Nearly one week after this, Jay Clayton, the SEC chairman cautioned investors about cryptocurrencies, implying that the commission would start supervising the market more intently for any possible breaches of securities regulations. The United States is not the sole government that is adopting a strict stand on cryptocurrencies; the government of China became more stringent on its crypto trading prohibition this week. The state of South Korea is strategizing on establishing the same ban.

This international step toward stricter regulation is seen as a core reason for the change in value that has affected cryptocurrencies the previous week. It would also probably be responsible for the fall of BitConnect, which happened following some letters for cease and desist from North Carolina and Texas watchdogs. A significant shortage of regulation possibly led to the present Bitcoin bubble by allowing the manipulation of the market and duplicitous trading activities. In 2017, the term Bitcoin became a household term; but actions like these are still prevalent. In November, an investigation by Business Insider realized that scams for ‘pump and dump,’ where investor teams increase the values of cryptocurrency artificially by planning buying of coins in bulk were common on Bittrex, the US exchange.

In the same manner, Bitfinex, the primary exchange by everyday capacity admitted that its platform had market manipulation in August when it disclosed that it had recognized numerous accounts carrying out ‘major manipulation methods’ connected to the currency of Bitcoin Cash.

Manipulative acts like these could just be the beginning

Manipulative practices like these might be just part of it, as some critics have accused Bitfinex of even forming Tether, a cryptocurrency linked to the US dollar to purchase bitcoins and raise the Bitcoin value artificially. It is evident that dishonest techniques like ‘pump and dump’ as well as ‘spoofing’ are likely because exchanges such as Bitfinex are not regulated. In any market that is regulated the practice of traders like the notorious “Spoofy” would be unlawful. However, without SEC or FINRA active oversight, they can be carried out in the market of cryptocurrency freely. As market manipulation has facilitated the significant rise of cryptocurrencies to inflated peaks, the most recent decline in values has been similarly remarkable. However, differing from earlier declines, the latest developing move to regulate the market of cryptocurrency could lead to a revival.

If SEC and FINRA start to stop fraudulent trading activities and supposing that the events were essential to the swift rise of Bitcoin, then Bitcoin might fight to increase as fast in 2018 in a similar manner as in 2017. The parties accountable for manipulative trading will also be motivated to trade the gains they achieved illegally and run. However, a rising number of individuals will fully discover that the cryptocurrency market has many suspicious practices. Because of this, if more cryptocurrency regulation restricts illegal actions and moves the cryptocurrency into the mainstream of regulation, the lasting drift might just be upward.