In April 2018, the former New York Attorney General, Eric Schneiderman, sent requests for information on more than a dozen exchange cryptocurrencies to learn more about their internal operations. Now, after months of investigation, the New York Attorney General's Office has made public its results.
A report titled "Virtual Markets Integrity Initiative", published Tuesday, September 18, 2018, confirms what many already know to be true: Many exchanges of cryptocurrencies do not have appropriate protections for consumers and are often targets for market manipulation.
The questionnaire was initially published in 13 cryptographic exchanges. Ten voluntarily respected the study, but four did not respond, arguing that customers were not needed in New York. But, after investigating three of these unresponsive – Kraken, Binance and Gate.io – the New York Attorney General's Office, "Binance reported, Gate.io and Kraken to the Department of Financial Services for the potential violation of the New York virtual currency regulations. "
Kraken, the only one of the four based in the United States, was the most noisy in his refusal to respond to the inquiry by defining the initial" poorly prepared "request and "a too large fishing expedition that requires irrelevant questions about the stated goal and lack of obvious questions that would actually be useful."
Highlights of the report
The report highlights three broad areas of concern.
First, exchanges take delight in different lines of activity that would normally be monitored closely in a traditional business environment. Often the platforms simultaneously offer an exchange site, play a role similar to broker-dealers and act as money transmitters. At the same time, many also have their own cryptographic properties and even issue their own cryptocurrencies.
"Each role has a distinctly different set of incentives, which introduces a substantial potential for conflicts between the interests of the platform, platform insiders and platform customers," the report said. For example, the report emphasizes that exchange clerks often negotiate on their platforms, even though they may have access to information on future trading or upcoming currency quotations.
Secondly, the report states that many exchanges make little or no effort to stop illicit commercial activities. "The platforms lack robust real-time and historical market surveillance capabilities, such as those found in traditional trading venues, to identify and stop suspicious trading patterns," the report said.
In addition, there is often no way to monitor suspicious trading on multiple platforms and "a few platforms seriously limit or even control the operation of" bots ", the report says." These factors, combined with the concentration of money virtual in the hands of a relatively small number of major traders, leave the platforms highly susceptible to abuse. "
Finally, the report argues that guarantees for client funds are" often limited or illusory. "The exchanges lack a consistent approach to third-party audits that serve to demonstrate that the exchanges possess the coins or legal money they claim to hold." This makes it difficult or impossible to confirm whether the platforms manage the virtual resources of the own customers as claimed. "
Concerns about market manipulation in cryptocurrency exchanges have been repeated again and again.In markets subtly traded, it becomes very easy for so-called" whales "or big holders to shift the price of bitcoins, or any cryptocurrency, whatever they want directly.
The report comes at a time when the US Department of Justice is investigating the manipulation of the encrypted market and the Securities and Exchange Commission (SEC) has rejected numerous offers for funds exchanged in bitcoins (ETFs) based on the fact that cryptocurrency markets are simpler ice that is too vulnerable to fraud and manipulation.