A Justice Department Probe Only Further Endangers Bitcoin Futures
The total market cap of Bitcoin is now just ahead of that of McDonalds Corp. (NYSE:MCD), which makes sense, since a new Justice Department probe is turning Bitcoin futures into hamburger. Between May 21 and May 25, the value of a Bitcoin fell about $1,000, to slightly over $7,500.
Despite headlines about a “rebound” it’s a huge comedown for the virtual currency, whose value started the year at over $14,000 and was as high as $17,000 in January.
Charts on other cryptocurrencies like Ethereum (ETH), LiteCoin (LTC) and Cardano (ADA) mirror that of Bitcoin. One Iota (MIOTA) is now worth $1.53. Ripple (XRP), supposed to mirror the U.S. dollar, is trading at 62 cents. Maybe they meant the Canadian dollar? Nope, that’s at 77 cents.
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Crypto Is Closely Held
Critics have long called Bitcoin a “pump and dump” scheme, easily manipulated by hype, high prices easily crashed by just a few traders.
A single “Bitcoin Whale,” an anonymous wallet worth $1.49 billion, sent the price of Bitcoin down $200 on a single day in April. The “whales” can swamp the market with sales, then scoop up Bitcoin at lower prices to gain even more control of the currency.
When stocks are closely held, big owners must file statements about their intents to sell with the Securities and Exchange Commission (SEC). An example of such a 10b5-1 I encountered recently is this one filed by Garmin Ltd. (NASDAQ:GRMN) co-founder Dr. Min Kao.
Such statements are required to prevent a big holder, or “whale,” from swamping the market. But such rules don’t apply to Bitcoin.
Some whales have publicly stated their intention to sell, like the bankruptcy trustee for Mt. Gox, a failed Bitcoin exchange, in Tokyo. Nobuaki Kobayashi said in March he still held $1.9 billion in Bitcoin and Bitcoin Cash, and was looking to get the best price for it on behalf of those who lost money there.
As in the April example, other Bitcoin futures whales like to be anonymous. With an estimated 40% of Bitcoin held by just 1,000 wallets, the currency is very easy to manipulate.
The Investigation
The Justice Department said it is working with the Commodity Futures Trading Commission (CFTC), under which the Bitcoin futures established last year are regulated against things like spoofing, which involves flooding the market with fake orders to panic people.
One example of spoofing might have been hiding in plain site in New York recently. Three Lamborghinis parked outside the Consensus conference at the New York Hilton turned out not to be owned by Bitcoin traders or owners but rented by the conference as a publicity stunt.
Publicly, Bitcoin bulls welcomed their new Department of Justice overlords, yet reporters still call crypto “a global investment crazy, drawing legions of loyalists,” celebrity endorsements and attracting the attention of Wall Street.
This just in. The Department of Justice is not based on Wall Street.
The Bottom Line
Blanket statements like the one above, from Bloomberg, in the face of falling prices which are evidence the Bitcoin bubble has already sprung a major leak, are as silly as CNBC writing of a “rebound” after a dead cat bounce off $7,100 per Bitcoin.
Bitcoin’s advantages remain its disadvantages. It’s a global shark tank, one which reporters without skin in the game attract small traders to, filled with big fish just waiting to take away their money.
The dream of a single global currency untethered to any national bank still sounds laudable, but it’s increasingly clear that where there is no government, there remains government. Of the strong, over the weak. Of the rich, over the poor.
Dana Blankenhorn is a financial and technology journalist. He is the author of a mystery novella involving Bitcoin, The Reluctant Detective Saves the World, available now at the Amazon Kindle store. Write him at danablankenhorn@gmail.com or follow him on Twitter at @danablankenhorn. As of this writing he owned no shares in companies mentioned in this story, and no cryptocurrency. To follow the value of cryptocurrencies bookmark https://coinmarketcap.com/
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