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White Collar WatchImageBitcoin, which surged 2,000 percent in 2017 to a peak of nearly $20,000 only to tumble more than 80 percent this year, may have had its value manipulated.CreditCreditBenoit Tessier/ReutersGet the DealBook newsletter to make sense of major business and policy headlines — and the power-brokers who shape them.__________The government has finally begun a crackdown on the market for cryptocurrencies and digital tokens. Does this spell the demise of digital currencies and the end of initial coin offerings?In recent weeks, the Justice Department joined a Commodity Futures Trading Commission probe into manipulation of the Bitcoin market. The Securities and Exchange Commission issued a statement on Nov. 16 to explain that its enforcement efforts were focused on initial coin offerings, which it considers to be securities that require registration and compliance with a host of disclosure rules.The Justice Department and the C.F.T.C’s investigation is focused on whether Tether, a cryptocurrency issued by a Hong Kong-based company, may have been used to drive up Bitcoin’s value through well-timed trades. Bitcoin surged 2,000 percent in 2017 to a peak of nearly $20,000, only to tumble more than 80 percent this year.Federal prosecutors have one advantage in the investigation of Bitcoin manipulation: They can use the wire fraud statute to prosecute any scheme involving property, including intangible property like a cryptocurrency.The connection between Tether and Bitcoin was first noted in a study by two finance professors at the University of Texas. They pointed out that “trading on unregulated exchanges, and specifically on cross-digital-currency exchanges, could leave cryptocurrencies vulnerable to gaming and manipulation.”The new penny stocks?But any nascent market, like that for Bitcoin, has significant growing pains. The question is whether cryptocurrencies are really just a new form of penny stocks, albeit with a much higher valuation.Penny stocks are cheap, thinly traded and not closely followed by analysts. And as anyone who has seen “The Wolf of Wall Wall Street” knows, they are subject to wild swings and market manipulation by their controlling shareholders. A little bit of good news — whether true or not — can double or triple the stock’s price overnight. That is when those in control of the stock can dump their shares and leave those gullible enough to invest in the hope of getting in on the ground floor of the next big thing with losses.Cryptocurrencies are subject to many of the same issues as penny stocks. Most of the trading takes place on unregulated platforms overseas. While many call themselves “exchanges,” they provide virtually none of the protections afforded to investors in stocks and bonds. With no clear records of who is trading, manipulating the price may not be very difficult for sophisticated participants looking to pump up the price.I.C.O. manipulationOn the same day the S.E.C. issued its statement last month, it also settled two cases with issuers of digital tokens for violating the securities laws, requiring them to pay penalties of $250,000 each and work to refund money to investors in their illegal offerings.In another case, Maksim Zaslavskiy, who was charged with criminal securities fraud involving an I.C.O., pleaded guilty in a Federal District Court in Brooklyn. This was the first case in which a judge found that the digital coins were a type of security, and therefore subject to the associated antifraud rules.The S.E.C. settled a case against Zachary Coburn, the founder of a company called EtherDelta that facilitated trading in digital coins, because it operated as an unregistered national securities exchange. For those looking to offer a trading platform in the United States, registering with the S.E.C. as an exchange is also an expensive and time-consuming process.By the end of the month, the S.E.C. had also settled charges with the boxer Floyd Mayweather Jr. and the music producer Khaled Khaled, known as DJ Khaled, for their promotion of digital tokens issued by a start-up called Centra Tech. The men did not disclose that they received payments for making online postings that hyped the digital coin, the regulators said. Mr. Mayweather agreed to give back the $300,000 he received, pay an additional $300,000 penalty and adhere to a three-year ban on promoting other investments. Mr. Khaled will pay back the $50,000 he got, as well as a $100,000 penalty.The crypto slowdownBut even before the government began its crackdown, there was a big sign that euphoria was evaporating from the market: the decline in cryptocurrency “mining” that generates additional digital tokens. Giga Watt, a digital currency mining operation in Washington state, filed for bankruptcy recently due in large part to the collapse in Bitcoin’s price. Nvidia, which makes graphics chips that are important for mining cryptocurrencies, forecast a 20 percent drop in revenue in its next quarter because of “the sharp falloff in cryptocurrency mining demand.”For the naysayers of cryptocurrencies and initial coin offerings, this is the anticipated end of a speculative bubble, much like the tulip mania in 17th-century Holland or the dot.com implosion. That does not necessarily mean that this type of investment will disappear, but greater government scrutiny will raise the costs for trading platforms and could effectively eliminate initial coin offerings if they must be registered with the S.E.C.Blockchain, the underlying technology for cryptocurrencies, is useful, and unlikely to disappear. But whether cryptocurrencies survive as a viable means of conducting business is a different question. Nathaniel Popper pointed out recently in The New York Times that Bitcoin and its brethren were designed to make payments easier but have been “hobbled by technical problems that make their tokens hard to use in real-world transactions. Those working on the cryptocurrencies have promised solutions, but they have been slow to produce them.”Just like penny stocks, digital tokens have seen their fair share of scam artists and questionable uses. As the government puts more resources into policing the trading of digital assets, the decline in cryptocurrency prices may well accelerate as those who fear being a target of fraudulent conduct wait for a time when there are greater protections for investors. The question is: Will cryptocurriences survive for long enough for us to ever see that day?Get the DealBook newsletter to make sense of major business and policy headlines — and the power-brokers who shape them.