After months of investigating the internal operations of crypto exchanges, New York prosecutors have released their disappointing findings. The report, titled “Virtual Markets Integrity Initiative,” released on September 18, confirms what many already know, most cryptocurrency platforms lack strong consumer protections and are often targets for market manipulation.
Initially, in April, questionnaires were sent to 13 cryptocurrency platforms. Ten of them voluntarily participated in the study, but four of them - Kraken, Binance, Huobi and Gate.io - did not respond, claiming that they did not serve clients in New York. Following their refusal to participate in the study, the New York Attorney General's office referred the information to the state Department of Financial Services on suspicion of violating virtual currency trading regulations.
As a result, the 42-page report revealed that most crypto exchanges were unprepared to meet their financial obligations to customers and were vulnerable to market manipulation.
The report highlights three areas of concern. Attorney's Office
First,multiple areas of business activity and operational roles create potential conflicts of interest. Crypto marketplaces operate multiple lines of business that are typically closely controlled in a traditional trading environment. Platforms often simultaneously offer crypto asset exchanges, perform a role similar to broker-dealers, and act as conversion centers. At the same time, many platforms allow their employees to trade from personal accounts or on behalf of the company, despite the fact that they have access to information about future trades or the upcoming list of coins.
Second, exchanges do not use serious monitoring tools to monitor and stop suspicious trading activity.
The inability to monitor suspicious trading, combined with the concentration of virtual currency in the hands of a relatively small number of large traders, makes platforms are highly susceptible to abuse, the report notes.
Third, the report argues that guarantees for the safety of customer funds are “often limited or illusory.” The exchange lacks a consistent approach to auditing third-party organizations that could confirm the availability of client funds as declared by the exchange.
Concerns about market manipulation on digital platforms run throughout the report.. In a cryptocurrency market that subtly reacts to various markers, it is very easy for so-called “whales” or large holders to artificially control the price of Bitcoin or any cryptocurrency.
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