Major Crypto Exchanges Under the Regulatory Fire for Price Manipulation

Everyone who is a friend to cryptos is speaking about the market maturity and efforts being made to control price manipulation, might not be pleased to hear this. A recent integrity initiative run by the Attorney General Of New York State for Virtual market found that three of the cryptocurrency exchanges that help power CME Group Inc.’s Bitcoin futures market could be victims of the price manipulation.

Bitstamp, itBit, and Kraken raise red flags with New York state regulators.

According to a recent report by Bloomberg, leading cryptocurrency exchanges Bitstamp, itBit, and Kraken that help power CME Group Inc.’s Bitcoin futures market have raised red flags with New York state regulators. The regulator in its finding has concluded that Bitstamp and itBit, have no formal policies for fighting market manipulation, while Kraken refused to participate in the attorney general’s review. What was more alarming is that Kraken, instead of proving its point went on defensive mode and made some bizarre statements like abusive trading, including that manipulation “doesn’t matter to most crypto traders” even though “scams are rampant.”

Kraken CEO also had tweeted in April 2018, when this inquiry began, calling this process as insulting


Not just Kraken, according to the report Binance Limited, Gate.io (operated by Gate Technology Incorporated), Huobi Global Limited also declined to participate as they claimed they do not allow trading from New York.

This becomes a point of grave concerns as it raises the possibility that CME’s futures are based on a price that’s being batted around by cheaters. CME’s contracts are valued partly by how much Bitcoin costs on cryptocurrency exchanges run by other companies.

Price manipulation has one of the key reasons for the Securities and Exchange Commission has been rejecting requests to create an exchange-traded fund that invests in Bitcoin. Bitcoin ETF is considered the next driver of a bull run that the crypto market will see as it is expected to draw institutional monies into crypto markets. Now with leading names being under the scanner of the regulator, SEC may just want to keep the ETF a bay till it has solid proof of fair pricing of this virtual asset.

Attorney General Barbara Underwood, under whom this initiative is being worked out was quoted by Bloomberg saying

“New Yorkers deserve basic transparency and accountability when they invest – whether on the New York Stock Exchange or on a cryptocurrency platform,” “Many virtual currency platforms lack the necessary policies and procedures to ensure the fairness, integrity, and security of their exchanges.”

“Virtual asset trading platforms have yet to implement serious efforts to monitor and stop abusive or manipulative trading,” Underwood said. “Few platforms seriously restrict, or even monitor, the operation of ‘bots’ or automated algorithmic trading on their venue.”

Also, read: Bitcoin Adoption in Argentina & Venezuela Hitting Highs in Tandem with Inflation

Other findings of the report

In April, the attorney general began asking 13 major crypto marketplaces for details on their operations, internal controls, and safeguards against market manipulation and fraud. Nine of the platforms participated, while the other four claimed they don’t allow trading in New York.  The report also found out

  • The Various Business Lines and Operational Roles of Trading Platforms Create Potential Conflicts of Interest. The report said that as the exchange carry out a lot of services and platform employees – who may have access to information about customer orders, new currency listings, and other non-public information – often hold virtual currency and trade on their own or competing platforms. Each role has a markedly different set of incentives, introducing the substantial potential for conflicts between the interests of the platform, platform insiders, and platform customers.
  • Trading Platforms Have Yet to Implement Serious Efforts to Impede Abusive Trading Activity. According to the report, Platforms lack robust real-time and historical market surveillance capabilities, like those found in traditional trading venues, to identify and stop suspicious trading patterns. There is no mechanism for analyzing suspicious trading strategies across multiple platforms.
  • Protections for Customer Funds Are Often Limited or Illusory and are not actually safe as most exchanges lack a consistent and transparent approach to independently auditing the virtual currency purportedly in their possession; several do not claim to do any independent auditing of their virtual currency holdings at all.

The report is definitely an eye-opener and the exchanges need to tighten up their shoes if they want to keep the trust of the people in them. If they don’t, they would soon lose their markets once regulated exchanges like ICE come into the game. We will have to wait for the comments from the exchanges to know their views on the report.

Will the exchanges come clean or even tighten their policies to counter the claims raised in this report.

The presented content may include the personal opinion of the author and is subject to market condition. Do your market research before investing in cryptocurrencies. The author or the publication does not hold any responsibility for your personal financial loss.
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Nilesh Maurya :Nilesh Maurya has been associated for past 8 years as an Investment Banker with Omega Capital, a bespoke Investment Banking outfit having offices in Mumbai, New York, Singapore, and Dubai. He has been a regular contributor to business publications such as Business India and Market Express and has been a mentor to many start-up companies. Reach out to him at Nilesh Maurya has been associated for past 8 years as an Investment Banker with Omega Capital, a bespoke Investment Banking outfit having offices in Mumbai, New York, Singapore, and Dubai. He has been a regular contributor to business publications such as Business India and Market Express and has been a mentor to many start-up companies. Reach out to him at nilesh@coingape.com