New York’s Report on Cryptocurrency Exchanges Can Help the Industry Mature

The New York State Office of the Attorney General (OAG) launched a virtual markets integrity initiative to educate New York cryptocurrency investors on cryptocurrency exchanges and how they operate, protect investor funds, and ensure transactions comes from legitimate sources, reported MIT Technology Review on September 18, 2018. 

While many appear skeptical of the Government’s approach, the MIT Technology Review believes that increased regulatory involvement can help the Cryptocurrency industry mature.

The Virtual Markets Integrity Initiative and Report

According to the report, in April 2018, the OAG sent letters and questionnaires to thirteen major cryptocurrency trading platforms. The letter and questionnaire requested information concerning the platforms’ trading operation and how they protect consumer assets. Other questions included fees, outages, and the effect or impact of automated bot trading.

While most cryptocurrency exchanges like Bitfinex, bitFlyer USA, Bitstamp, Bittrex, Coinbase, Gemini Trust Company, itBit, Poloniex, and Tidex voluntarily participated in the questionnaire, four platforms refused to answer these questions. The four platforms were Binance, Gate.io, Huobi Global Limited, and Kraken.

Their lack of participation stems from their claim that they do not allow trading from New York. The OAG has investigated that matter further and has referred Binance, Gate.io, and Kraken to the Department of Financial Services for potentially violating New York’s cryptocurrency regulations.

The responses to the questionnaire demonstrated that cryptocurrency exchange platforms vary significantly when it comes to responding to certain risks and fulfilling customer responsibilities. There are however three broad areas of concern for cryptocurrency exchanges in general.

These include the large numbers of business lines and operational roles which open the cryptocurrency exchange to a potential conflict of interest, the lack of effort to impede abusive trading activity, and limited protections for customer funds.

Good Thing for the Cryptocurrency Industry

According to New York Attorney General Barbara Underwood, “many lack the necessary policies and procedures to ensure the fairness, integrity and security of their exchanges.”  Underwood made these statements on her official Twitter account and also encouraged investors who are considering trading cryptocurrencies to ask the appropriate questions concerning security measures like insurance, guardrails, registration, and notifications.

Jesse Powell, the CEO of Kraken, the cryptocurrency exchange that refused to participate in the OAG’s questionnaire recently took to Twitter on September 19, 2018, to voice his opinions on the matter. He lashed out at the state regulators and called them “abusive.” In a Karken blog post in April 2018, Powell previously argued that protection from market manipulation “also doesn’t matter to most crypto traders.”

Aaron Wright, a professor from the Cardozo School of Law, however, argued that the report might be a positive thing for the cryptocurrency industry as it can help push the “good actors” to make fairer processes for customers. “I think ultimately, as this industry matures, the marketplaces that are the safest and sound and secure will tend to win.”