New York Attorney General: Cryptocurrency Exchanges Vulnerable to Manipulation

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A new report issued by the New York Attorney General’s office states that cryptocurrency exchanges are subject to poor surveillance tactics and conflicts of interest, making them more prone to manipulation and privacy breaches.

Cryptocurrency Exchange Manipulation

This Looks Familiar

Manipulation in the cryptocurrency market seems to be a running theme. A few months ago, University of Texas finance professor John Griffin released a document stating that bitcoin’s price swell during 2017 was the result of manipulation by investors who were tying the currency to Tether, an alleged stable coin backed by USD. The report suggests that every time bitcoin’s price dropped in 2017 by even a marginal amount, the group would use Tether to purchase bitcoin, thereby tying it to U.S. dollar reserves and causing further spikes in its price.

Though executives of the stable coin state they’ve done no wrong, the report alleges that the maneuvers were first-class manipulation tactics and has, in turn, caused organizations like the Securities and Exchange Commission (SEC) to step in and investigate. A company audit of Tether has potentially confirmed that the purported manipulation did not take place, and even Ethereum co-founder Joseph Lubin has taken a stance, siding with Tether and rejecting Griffin’s claims.

Is It Happening All Over Again?

Whether such a move really took place remains to be seen. However, the subject of manipulation has often been a large – and recurring – theme in the cryptocurrency arena, and now it’s making its way back into news forums. The latest report from the Attorney General’s office of New York explains that online platforms where cryptocurrencies like bitcoin can be bought and sold by individual customers do not have the same level of security as traditional banks or other establishments that house assets like precious metals. Thus, market manipulation is a constant threat, as is the risk of customer information falling into the wrong hands.

Attorney General Barbara Underwood explains:

“As our report details, many virtual currency platforms lack the necessary policies and procedures to ensure the fairness, integrity and security of their exchanges.”

You Should Have Played by the Rules

The organization is now looking into whether three specific cryptocurrency exchanges might be operating illegally within the Big Apple. These platforms include Binance, Kraken and Gate.io. All three have been under the Attorney General’s observation since April of this year after they refused to participate in the office’s Virtual Markets Integrity Initiative, in which 13 specific digital exchanges operating in New York were asked to share information regarding the safety of their practices.

For the past five months, the three exchanges in question have not cooperated with Underwood or her team.

How’re You Going to Keep People Safe?

Some of the information in the report details how various exchanges can often overlap certain lines of business. These include executives trading for their own accounts on their own venues, thereby representing serious conflicts of interest per the report’s verbiage. In addition, several exchanges often issue their own unique tokens or even charge companies that seek to list those tokens.

Furthermore, the document says that while some platforms do police their markets for abuse, many others do not, and that:

“Trading platforms lack a consistent and transparent approach to independently auditing the virtual currency purportedly in their possession.”

Some Final Words

Thus, the report deems that it’s either “difficult or impossible” to confirm that exchanges are exercising appropriate means of responsibility when it comes to holding customer accounts and keeping their funds safe.

It further states:

“Platforms lack robust, real-time and historical market surveillance capabilities, like those found in traditional trading venues, to identify and stop suspicious trading patterns.”

Nick Marinoff

Nick Marinoff has been covering cryptocurrency since 2014. He has served as a lead content writer and news editor for Money & Tech; a public relations writer for Game Credits, and a senior writer for both Bitcoinist and News BTC.

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