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Sheila Bair – The cryptocurrency trading markets are now mature
Second Sheila Bair, the encryption market has successfully transited from an era of anarchy and is now mature.
In an article published on coindesk.com, Sheila noted that the early years of digital asset trading were characterized by disorganization. Most of the participants were looking for short-term gains. Furthermore, there was a regulatory uncertainty and there was no adequate means of identification.
The markets, however, have matured. A significant number of exchange platforms are currently licensed and regulated by the competent authorities in their respective markets. Like other investment platforms, regulated exchanges are obliged to conduct audits and comply with anti-money laundering legislation.
Another development that should improve order in the crypto-trading market is the recent introduction of Bitcoin futures. Because they are regulated by the CFTC, these futures contracts will result in improved market surveillance techniques and the implementation of policies against investor manipulation.
The growing participation of institutional investors in the cryptographic space is the result of the aforementioned maturity. Although most digital currencies have an uncertain future, most investors around the world are beginning to recognize cryptos as a real asset class.
The challenges
The number could increase steadily, but most of Institutional investors they are still reluctant to go into encryption. The SEC is trying to alleviate concerns about the risk of trading digital assets by regulating the platforms operating in that sector. Therefore, the recent disapproval of exchange-traded products (ETPs) was a surprise for the crypto community.
Before the start of the Consensus Invest meeting, the President of the SEC, Jay Clayton, suggested that the commission may not approve any encrypted exchange product soon. Clayton indicated that the SEC had doubts about the reliability of cryptographic surveillance techniques and the vulnerability of investor funds.
One of SEC roles is ensuring that investor funds are safe. This implies the implementation of anti-manipulation policies. However, the commission erroneously identifies cryptos as an asset class vulnerable to manipulation and hacking attacks. Instead, the authority should assess whether the security mechanism offered by the encrypted exchange products meets the minimum requirements.
How to eliminate manipulation
Currently, there is a huge disparity in the nature of the monitoring and anti-manipulation policies issued by various jurisdictions in the crypted space. Bitcoin, however, is less vulnerable to manipulation due to its widespread decentralization. Altcoins are particularly likely to be manipulated because their spot markets are concentrated in small areas.
The risk of manipulation it can be mitigated by arbitrage between OTC markets and spot exchanges. The use of this approach means that investors will not interact with people who claim to have a privileged knowledge of the most profitable assets. Rather, the aggregate supply of specific resources will be achieved using a decentralized algorithm.
Bitcoin it is not immune to manipulation. This is because it has limited liquidity and only a few individuals own most of the Bitcoins currently in supply. To increase liquidity, the market hopes for an increase in the influx of Institutional investors, a process subject to ETP's approval of the ETP.
Naturally, cryptographic exchanges will have to improve its surveillance and security mechanisms to safeguard the large investments introduced by Institutional investors. The size of the ETP (referred to 25 BTC per share) means that it will only be accessible to companies and entities with a high equity. These groups are not susceptible to manipulation by retail investors.
When regulations are implemented, i SEC must ensure that they remain realistic and achievable. This, in turn, would stimulate more involvement Institutional investors in the encrypted space, improving standards in the sector.
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