The U.S. Commodity Futures Trading Commission (CFTC) is investigating the June 21 ethereum price flash crash that occurred on GDAX.
As reported by Bloomberg, the CFTC has asked Coinbase — the owner and operator of GDAX — to supply information about the June 21 flash crash, which caused the ethereum price to plunge from $317.81 to 10 cents within milliseconds before recovering to its previous level.
Bloomberg cites two unnamed sources familiar with the matter who say that the financial watchdog is interested in whether margin trading played a role in the incident. Through margin trading, large-scale traders can use borrowed funds to place high-risk bets on the future value of the asset, in this case, ether.
The crash appears to have been triggered by $12.5 million trade that caused other traders to panic sell and automatic sell orders to initiate. Coinbase compensated traders who were impacted by the flash crash, and the company told Bloomberg it “fully cooperates with regulators” but was “unaware of a formal investigation” into the event.
The CFTC investigation into the ethereum price flash crash on GDAX is yet another sign of the increased focus U.S. regulators are placing on the cryptocurrency markets.
Last month, the CFTC filed a suit against Nicholas Gelfman and his investment fund, Gelfman Blueprint Inc., for allegedly operating a $600,000 Ponzi scheme. While Gelfman claimed to be using an advanced algorithm to trade bitcoin and other cryptocurrencies, he was actually using new investments to pay “dividends” to earlier investors. Moreover, former CFTC commissioner Bart Chilton recently penned an op-ed in which he stated that he believes the agency should be given the authority to investigate volatility within the cryptocurrency markets.
There’s no questions—zero—that had digital currencies been regulated, I would have sought an investigation into the precipitous price changes we’ve witnessed,” he wrote.
The Securities and Exchange Commission (SEC) has also been actively looking into the industry–with a particular focus placed on initial coin offerings (ICOs). The agency recently created a cyber task force to combat threats within the digital ecosystem, and the SEC stated ICOs are one of the main threats the unit will investigate. Days later, the SEC filed a complaint against Maksim Zaslavskiy, organizer of the REcoin ICO, alleging that he committed securities fraud by erroneously promising investors that his companies would invest their assets in real estate and diamonds, when in fact the entire operation was a scam.
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Last modified: March 4, 2021 5:00 PM