New York Attorney General Report Concludes Crypto Exchanges Are Prone To Price Manipulation And Have Conflicting Interest
A new report by the New York Attorney General's office concluded that cryptocurrency exchanges are prone to market price manipulation and that most exchanges have conflicting interest given their other lines of business.
A recent report published by the New York Attorney General’s office concludes that cryptocurrency exchanges are prone to price manipulation and have conflicting interest given their different lines of business.
The report was later heavily criticized by cryptocurrency exchanges Coinbase and Kraken.
Cryptocurrency exchanges are prone to manipulation
The report, which was published on September 18, concludes that crypto exchanges are not only prone to manipulation but also suffer from conflicts of interest and other consumer risks.
Tuesday’s publication draws its conclusion from the “Virtual Markets Integrity Initiative”, which was launched in April this year.
This was when Eric T. Schneiderman, the New York Attorney General issued letters to thirteen crypto exchanges, with a demand for information on their operations, internal controls, and other significant issues.
This action was taken by the New York Attorney General to increase the transparency of crypto exchanges, and to provide investors in the U.S. with a better understanding of the risks associated with cryptocurrency exchanges.
According to the report, a study was carried out on ten cryptocurrency exchanges (based in the U.S. and abroad), taking into account key practices. Part of the information used for the study was as obtained from the Attorney General’s office about the state of digital currency markets as a whole.
Poor market surveillance
The report questions several key practices undertaken by crypto exchanges. According to the report, a number of cryptocurrency exchanges suffer from poor market surveillance and lack adequate protections for their customers.
According to the report, cryptocurrencies on several exchanges can be bought and sold by individuals with lower safeguards when compared to traditional financial markets.
This opens up cryptocurrency exchanges to the possibility of market manipulation, therefore putting customer funds at risk. An excerpt from the report reads:
“Though some virtual currency platforms have taken steps to police the fairness of their platforms and safeguard the integrity of their exchange, others have not. Platforms lack robust real-time and historical market surveillance capabilities, like those found in traditional trading venues, to identify and stop suspicious trading patterns.”
Abusive trading of cryptocurrencies
The report emphasizing that a large number of cryptocurrency exchanges deploy automated traders, offering them special conditions, which leaves retail customers at a disadvantage.
According to the report, a number of cryptocurrency exchanges in the U.S. have overlapping lines of business that present serious conflicts of interest. The report explains:
“Automated trading activities could also allow a single trader or group of traders to command multiple accounts simultaneously to obscure coordinated trading, in order to manipulate prices.”
The report notes that several cryptocurrency exchanges which were under study trade digital assets using their own accounts in volumes that make up a significant portion of total trading.
Poor examination of cryptocurrencies
The study also questions the auditing methods of cryptocurrency exchanges, notably the lack of proper anti-money laundering and know your customer (AML/KYC) verification, before accepting to trade virtual currencies on their platform.
The report suggests that the absence of a consistent, stringent, and transparent auditing procedure puts the funds of customers at risk of damages from hackers or theft.
Furthermore, the report noted that there is a gross inadequacy in the public protection and the sufficiency of the commercial insurance to cover possible losses.